Stocks got slaughtered the first week of March as the S&P 500 index (SPX) fell to its lowest level since September 1996 and the Dow Jones Industrial Average (DJIA) officially dropped 20 percent from Inauguration Day, leading pundits to label it the Obama bear market. Amid the chaos, the American Association of Individual Investors (AAII) released results of its weekly member survey in which 70 percent of respondents were bearish — the most pessimistic reading in 21 years. Such a negative reading from the AAII survey is a dream come true for contrarians, who argue that when the crowd becomes too frightened or greedy, the market is likely to change direction. Clearly, investors were throwing in the towel at this point, which can be the best time to buy stocks.Read on to learn how to use this sentiment indicator in your trading or investment strategy.
Successful professional traders know that their greatest enemy is in their own minds. The emotions of fear and greed are more powerful than any market forces in creating losses.
There are consistent characteristics that events have over time. You can begin to build a strategy or portfolio and be ready to take advantage of these events should they start to appear.
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