Why do we say when we are doing the momentum strategy, we are putting demand on liquidity and instead when we use the contrarian strategy, we are supplying liquidity?
With a contrarian strategy, there are more sellers than buyers. You are providing that door for the exit.
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If you want to buy when everyone else wants to buy, there may not be enough sellers; i.e., too little liquidity.
If you want to sell when everyone else wants to buy, you’re providing them stuff to buy; i.e., liquidity.
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