The Contrary Theory expresses a philosophical concept. It primarily reveals that individuals should possess their own unique thinking and behavioral styles, which are generally not easily swayed. Regarding the stock market, the following perspectives must be noted so that at critical moments of market reversal, we can be more alert than the average person.
The Contrary Theory states that in capital markets such as stocks and futures, investment decisions are entirely based on crowd behavior. When everyone is bullish, it signals the peak of a bull market and the end of an upward trend. When everyone is bearish, it indicates the bottom of a bear market and the end of a downward trend. At such times, as long as you act contrary to the crowd, opportunities for wealth creation will always exist.
When applying the Contrary Theory, extreme caution is required because it is impossible to objectively and precisely quantify the fundamental turning points between bull and bear markets. In practical investment operations, its warning value far outweighs its operational significance.
The "contrary" in Contrary Theory does not mean opposing the crowd at all times, nor does it imply that the crowd is always wrong. In fact, the crowd is correct in most major phases of market trends. They only become wrong at the two extreme points of bull and bear markets—when everyone is right, a qualitative change occurs, turning everyone wrong. Therefore, when applying this theory, other technical analysis methods must be used to confirm the two extreme points of bull and bear transitions. Unfortunately, there is currently no absolutely accurate method that can provide substantial practical assistance to this theory. Thus, the theory can only serve as a macro-level warning, with limited practical operational value.
The application of extremes—"what reaches an extreme must reverse" and "after extreme adversity comes prosperity"—as well as the grasp of quantitative and qualitative changes in market trends, is an art. Only through diligent and repeated practice can investors develop true proficiency in mastering this art. Many human behaviors are simply too difficult to measure with definitive scientific laws. Those aspiring to become great investors still have much work to do in harmonizing the scientific and artistic aspects of investment behavior.
Investors should note the following standard, which plays a crucial guiding role in practical investment: Any investment theory that fails to achieve objectivity, quantifiability, and adaptability cannot become a truly valuable practical operating system. In practical application, investors must make it objective, quantifiable, and safeguarded—ensuring correct handling in case of unexpected events.
