Market Psychology

A stock falls from 100 and the contrarian buys into the panic at 70, 30% off the high. The bottom is still ahead: from the entry the position falls a further 29% before it turns, and only then ends +17%. Right in the end, with a stop at −15% you would have been out before it worked. Being early is the contrarian’s usual condition.

• Over 3–12 months the crowd’s direction tends to persist (momentum, Jegadeesh & Titman 1993). Contrarian returns show up over years: De Bondt & Thaler (1985) found past losers beat past winners by about 25% over the following three years.
• Disagreeing is not an edge. The edge is a view on value that turns out right; going against a correct crowd just loses.
• Sentiment extremes are clearest afterwards (see Hindsight Bias).

close = pd.Series([100, 92, 85, 70, 72, 60, 55, 50, 58, 66, 75, 82])   # a sell-off and recovery, made up
entry = close[close <= 0.7 * close.iloc[0]].index[0]   # buy into the panic, 30% below the high
worst = close[entry:].min() / close[entry] - 1        # what you sit through first
final = close.iloc[-1] / close[entry] - 1

Assumes import numpy as np and import pandas as pd. Each snippet carries its own example numbers; the comments say which are made up.