Definition of contrarian

A contrarian investor takes positions opposite to the general trend – for instance, selling a stock that most other investors are buying – based on the view that the greater the number of investors that take a certain position, the more likely a price is likely to peak or bottom out. By taking the opposite position when everyone is buying a certain asset, the contrarian avoids buying when the price is high. Likewise if the contrarian investor holds onto a security when everyone is selling it could help to avoid selling when the price is low. There are clearly risks associated with taking a contrarian position.

 

contrarian in the news

In May 2013 a writer commented that Europe should embrace a financial transaction tax especially because it would discourage high frequency traders. High frequency traders  are biased towards contrarian trades, he said, they buy when others sell – and so they provide liquidity, but only when liquidity is plentiful. In times of market disruption, they cease being contrarian and try to get ahead of the trend, draining liquidity when it is needed most, such as before the “flash crash” of May 2010.