Stock market lessons focus on trend following and contrarian strategies

A series of market lessons highlights key strategies for navigating volatility in the Japanese stock market, specifically regarding the Nikkei 225.

One core principle emphasizes the importance of trend following: investors should buy on dips during an uptrend but move to cash quickly once a trend breaks. In markets characterized by polarization, where indices and individual stocks diverge, focusing on strong stocks is considered essential. To avoid confusion during trend reversals, traders are advised to establish clear technical criteria, such as using 25-day or 5-week moving averages, to signal when to change positions.

Another lesson focuses on contrarian opportunities during periods of extreme pessimism. When bad news is abundant and market sentiment is overwhelmingly negative, it can signal an oversold condition and a potential buying opportunity. However, the strategy cautions that investors must distinguish between temporary market anxiety and fundamental economic shifts. To manage risk, it is recommended to use staggered buying rather than committing all capital at once and to set strict stop-loss orders.