contrarian investment theory investment & finance definition

A trading theory that recommends making investments contrary to the apparent direction of the market or commonly accepted wisdom. The theory holds that if everyone is certain something is going to happen, then it won’t. Contrarians also draw their conviction from the viewpoint that if everyone believes the market will rise, they have already bought. Thus, there are few investors remaining to create additional buying, which means it is likely that the market will decline. Some mutual funds have adopted a contrarian trading strategy as their main focus.