The stable profit of trading is often not the use of hype and superb skills as some people in the market imagine, but the repeated thinking, deliberation and mastery of basic concepts and basic logic.
1. The abilities and inability of human beings
1. Judgment on the direction of price movement
So far, human beings have not been able to make an absolutely correct judgment on the direction of price movement. No matter what combination of market conditions constitutes a module, as long as the number of specimens collected is sufficient, we will discover the fact that when the market operation state meets the module definition, the price operation can rise, fall, and adjust horizontally.
Although human beings cannot make an absolutely correct judgment on the direction of price movement, we can discover the modules composed of various combinations of market conditions through research, and the occurrence rate of its rise or fall.
2. Judgment on the price range
There is such a theorem in the philosophical thought system of Dow Theory, which is called "primary positive wave undeterminable theorem". This theorem states that the time and amplitude of the primary forward wave cannot be measured. Human beings 100 years ago had no ability to measure the main-order forward wave, and humans today also have no ability to measure the main-order forward wave. Therefore, it is recommended that investors should use trend following technology instead of trend forecasting technology in the investment process.
The trend of modern financial investment is to pursue the scientific nature of investment behavior, emphasizing the quantitative evaluation of the consequences of investment behavior. The following principles can be followed in the investment research process. Although human beings cannot make an absolutely correct judgment on the range of price movement, we can use research to discover modules composed of various combinations of market conditions and the occurrence rate of price movement ranges within a fixed range.
3. Basic inference
From the above principles, we can draw the following inferences:
In the financial market, for investors who use technical tools, there is no hard rule as follows: "When condition A is met, event B must happen."
Many technical investors pursue this goal and work hard, but the result is often a loss in the investment market. When summing up their experience, they often come to the conclusion: "The failure of investment is because their own efforts are not yet mastered and they need to continue to work hard." They don't know the goal they are pursuing (when the condition A is met, the event B must happen. .) does not exist at all. In this way, technical tools should be useless, just not, technical tools are useful, because there is another soft law in the market, that is: "when condition A is met, what is the probability of event B occurring?"
Since human beings cannot make absolutely correct judgments on the direction and range of price movement, in the actual investment operation process, investors cannot pursue the goal of a single behavior, but can only pursue the total result of N repeated investment behaviors Target. From this, we can draw the following introduction: "In the field of financial investment, it is a correct investment philosophy to base the inevitability of N repeated investment profits on the randomness of the profit and loss of a single investment behavior."
2. The essence of technology-based investment
1. Three prerequisites for the establishment of technology-based investment
①The market price is all inclusive
Market prices can accommodate all factors that affect the market. Assuming that there are N factors affecting the market at the same time, among which X is bullish and NX is bearish, these N bullish or bearish factors will form a combined force in the market, and this combined force will determine the direction of the market price. The subject of technical investment research is how the market price will operate under the effect of the above-mentioned synergy.
②The price evolves in a trend way
Looking at the historical chart, we can easily find that the price evolves in a trend manner. Promotion and adjustment appear alternately, forming a round-by-round trend.
③History will repeat itself
The repetition mentioned here refers to repetition in the sense of probability, not mechanical repetition. In all relevant materials, we can see that history will repeat itself, but the relevant logical inferences cannot be found. In view of this, I try to infer that history will repeat itself, for reference only.
2. In technical investment in the financial market, there are no inevitable events, only conditional probability events.
Therefore, the true meaning of investors' pursuit of success should be: "follow the principle of engaging in high-probability events, and not pursue the result of a single action, but the total result of N repeated actions."
3. Based on the above reasons, for all technical tools, the investment function must be discussed on the level of probability. I often hear people talking like this: "Technical analysis is useless. An analyst said that the market will rise on a certain day, but it fell instead." The above discussion contains two misunderstandings:
①The commentator misunderstood the functions of technical tools and how to use them, which is very common.
②Professional analysts also misunderstand the functions of technical tools and how to use technical tools. This phenomenon is terrible, because the result is often harmful to themselves and others.
3. Re-understanding of concepts related to financial investment
1. Regarding investment risks
①The concept of risk: Talking about risk in general, it is a concept that expresses the potential loss possibility in the process of financial investment. For a mature professional financial investor, in each specific investment plan, its investment risk is a specific and precise number.
②The source of risk: The risk of financial investment does not come from the financial market, but from the investor's investment method. The same account is in the same financial market, and the risk characteristics reflected by different investment operation methods are completely different.
③Essence of risk: investment cost. The form of financial investment cost is the risk borne in the investment process.
④ Logical relationship between expected risk and expected profit: similar to the relationship between bait and fish in fishing.
2. The practice method of financial investment internal strength
Reading pictures and marking pictures is the only way to practice financial investment internal skills. Suppose an investor does not understand any investment theory or investment tools, as long as he can memorize 5,000 K-line charts, he is an investment expert. Although he doesn't know any moves, he has profound internal skills, similar to a master of internal skills in the field of martial arts. As long as such investors have a little understanding of investment principles, their trading effects will be better than most traders without internal skills in the financial market.
There are certain skills and methods in reading pictures and marking pictures. Mastering these skills and methods is conducive to improving work efficiency and achieving the goal of getting twice the result with half the effort. General method: Divide significant tops and bottoms into three categories, which are used to mark the main forward wave, secondary reverse wave and daytime clutter respectively. Then divide the price fluctuations between the top and bottom of the same category into bands, and memorize the scale, speed, volume energy, and necessary power system status of each band respectively.
Deep investment internal skills are not only a necessary condition for schematic transactions, but also a necessary condition for proposing modular hypotheses in the process of model investment research.
3. In the field of financial investment, portraits of investment behavior of non-professional investors
In the financial investment market, a non-professional investor buys a stock or buys a futures contract at a certain point in time. The technical analysis conclusion can be the basic analysis conclusion.) Next, he thinks that the price rise is a high probability event, so he goes to buy. But there are three problems he can't solve——
① It is meaningless for someone to think that when a certain fixed consulting state occurs, the price increase is a high probability event. Only when the market recognizes that the fixed advisory status has occurred, it makes sense that the price increase is a high probability event. Non-professional investors do not have the ability to ensure that personal knowledge matches market recognition.
②What is the specific probability of the price increase event? have no idea. Therefore, its trading method does not have a betting adjustment function.
③Many investors' trading behavior lacks planning, and there is no clear entry and exit rules. Once the transaction is launched, the weaknesses of human nature (such as greed, expectation, fear, etc.) will seriously affect the objective judgment.
4. Signs of Profitability
All financial investment participants hope to have profitability, so what is the sign of profitability? Many people have an incorrect understanding of this issue. There are three abilities that are often mistaken for profitability, and we will analyze them one by one. How to judge whether a currency company is reliable or not?
①Profit experience does not equal profitability
Some people have the experience of making profits in stages or one-time profits, and they think that they have the ability to make profits. This kind of understanding is wrong. Profit experience does not equal profitability.
②The ability to see the market is not equal to the profitability
Some investors have a strong ability to see the market and think that they have profitability. This understanding is also wrong. First of all, if there are no risk monitoring measures in their investment behavior, that is, stop loss, then they can make profits as long as they look at the market correctly. But human beings have no ability to guarantee that the judgment on the direction of price movement is absolutely correct. If you read it wrong one time, it will be a disaster. Secondly, if there are risk monitoring measures for their investment behavior, that is, there are stop loss regulations, then they can lose money if they look at the market correctly.
③ The ability to influence market prices is not equal to profitability
When some institutional investors control more than a certain percentage of a certain stock or a certain futures contract, their trading behavior will affect the market price, and even determine the rise or fall of the price in a short period of time. But this ability to influence market prices is not the same as profitability. Cases of bankers losing money have occurred many times in international and domestic financial markets. That is to say, investors who have the ability to influence market prices can still lose money.
5. The lifeline of financial investment
Sticking to a trading plan is the lifeline of financial investing. It is easy for an investor to execute a trading plan, but it is meaningless to execute a trading plan. Here we can quote a passage from Chairman Mao, "It is not difficult for a person to do a good deed, but the difficult thing is to do good deeds and not do bad deeds for a lifetime.".
Inference: "It is not difficult for an investor to execute a trading plan, but the difficulty is to execute the plan for a lifetime of transactions, there is no transaction that changes the plan, and there is no transaction without a plan." The survey data shows that among all financial investment participants, Investors who can execute the trading plan 10 times in a row account for 20%, investors who can execute the trading plan 20 times in a row account for 10%, and investors who can execute the trading plan 100 times in a row account for less than 1%. This is the fundamental reason why most people are losers in the financial market.
6. K-line diagram decomposition
The k-line diagram we usually see can be decomposed into three curves——
①Basic market supply and demand curve
② Curve of speculative factors
③Policy Curve
In fact, the price curve we see is formed by superimposing and merging the above three curves.
① The fluctuation period of the basic supply and demand curve is long, and the fluctuation of the curve is gentle.
② The fluctuation cycle of the curve of speculative factors is relatively short, sometimes violent.
③ The policy curve shows strong suddenness.
The research object of the basic analysis is the basic supply and demand curve, and the research object of the medium and short-term technology module is the speculative factor curve, that is, the regularity of all market participants and group behavior. The research object of the long-term technology module is the curve of speculative factors plus the basic supply and demand curve, which not only includes the law of group behavior but also the law of basic economics.
7. Research level of technical analysis
Of the three curves above, technical analysis studies the speculative factor curve. In other words, technical analysis studies the regularity of the collective behavior of all financial market participants. Using technical means to define modular concepts and model trading opportunities is a high-level professional and technical investment. This module definition process is actually to define a commensurable concept in a language that computers can understand.
Suppose there is a point in the desert where a blank stone tablet stands. When a person walks here, whether to move forward or turn his head back, the result is random and irregular. But if 100,000 people make choices here, there may be rules. If the choice of 100,000 people is 50% forward and 50% backward, and there is no obvious regular feature, we can draw various patterns on the stone tablet and continue to measure. If we paint a beautiful landscape on the stele, will more people continue to move forward? If we draw a terrifying pattern on the stele, will more people turn their heads back? And this beautiful scenery and terrifying patterns are equivalent to different module concepts in the field of financial investment. When we do professional research on financial investment, we want to find out what the most likely choices of financial market participants are when various market states occur.
8. The concept of investment and gambling
① Gambling is a blind and purposeless betting behavior, and it is impossible to evaluate the probability of winning each betting behavior, that is to say, it is impossible to grasp the odds of winning.
②Investment is a gaming behavior based on the ability to fully evaluate the probability of winning each bet, that is to say, be able to grasp the probability of winning.
②The above two are only different in concept, regardless of the occasion. If you can grasp the odds of winning in the casino, it is an investment behavior; if you cannot grasp the odds of winning in the financial investment market, it is a gambling behavior. In fact, most people in the financial market have been engaged in simple gambling, so almost everyone has a record of making a profit, but this does not mean that he can make a long-term sustainable profit.
9. Attitude towards the market
① Gambling attitude: subjective, emotional, wishful thinking.
②Investment attitude: invest strictly in accordance with the pre-established, rigorous game plan with positive expected investment profitability.
10. The difference between analysts and investors
①Different goals: The analyst's goal is to predict future price trends or future price predictions. The goal of investors is to establish the statistical characteristics of the non-random part of price fluctuations on the basis of studying the characteristics of price distribution, so as to formulate correct trading rules.
②The investment philosophy is completely different: In the eyes of investors, market risks cannot be avoided fundamentally, and the basic principle of investment is to pursue profit maximization under the premise of minimizing risks. The philosophy pursued by investors is to make as few mistakes as possible and make as few mistakes as possible. The analyst's philosophy is to be as "right" as possible. On the surface, it seems that the difference between the two is subtle, but from the perspective of trading mentality and guidance to trading behavior, they are very different.
11. The difference between schematic investment and model investment
Schematic investment is a qualitative judgment on trading opportunities, emphasizing the artistry of behavior, and requires extremely high psychological quality. There are many master-level investors who are schema traders, such as Gann and Staemiar.
Modeled investment is a quantitative judgment on trading opportunities, emphasizing the scientific nature of behavior, and relatively low psychological quality requirements. Model investment is the main investment method of hedge funds and some large multinational funds.
12. The difference between technical analysis and fundamental analysis
The technical analysis school believes that the market is always right, and the analysis data used is transaction data, suitable for tactical investment, with strong risk control ability and strong adaptability to multiple markets.
The fundamental analysis school believes that the market is always wrong, and the analysis data used are basic market data, suitable for strategic investment, with extremely weak risk control ability and extremely weak adaptability to multiple markets.
No matter what method is used to analyze the market, the working mode is the same. "If A (given conditions), then B (deduced results)" is a common working mode of all analysis schools. The condition A here must have the following attributes for the analysis to be meaningful——
①Availability: Trading data is extremely easy to obtain, but basic market data is difficult to obtain.
②Authenticity: The transaction data can guarantee the authenticity of the data without cost. To ensure the authenticity of the basic market data requires a high cost.
③ Timeliness: Modern communication is extremely developed, and transaction data can be obtained in time. The timeliness of obtaining basic market data cannot be guaranteed.
For strategic investing, fundamental analysis is a must. For tactical investment, technical analysis has a strong advantage.
13. The category of financial investment technical tools
Financial investment technology tools can be roughly divided into three parts:
① Graphic structure analysis theory. Such as Dow Theory, Wave Theory, Gann Theory, Four-Dimensional Space Theory, Cycle Theory, etc.
② power system, that is, all indicators. Such as KD, MACD, RSI, DMI, etc.
③ price volume research theory.
14. Definition of technical tools
Technical tools are used in different market state description systems to measure the laws of the probability sense presented by the market price operation form.
15. Tech tools are just tools
Technological tools are just tools, like a gun in a gunslinger's hand, or a sword in a swordsman's hand. The same pistol, in the hands of Xu Haifeng, can hit a world champion, but in the hands of ordinary people, it can't hit anything. Could the problem be with the gun? Of course not, the problem is people. The same sword, held in the hands of a famous swordsman, is an incomparably sharp weapon, and held in the hands of a woodcutter, its function is a hatchet. In the same way, the application effect of technological tools depends entirely on the users.
16. Technical modules and trading systems
Broadly speaking, a trading system is a complete system of trading rules. For ease of understanding, we give the following specific definitions of technical modules and trading systems. A market concept with a positive expected profit rate (this concept can be described using transaction data or basic market data.), plus a set of clear and unique entry and exit rules (one entry rule, two exit rules .), constitutes a simple technical module. Several modules are combined to form a comprehensive trading system.
17. Definition of technical module winning probability
Starting from the entry state regulation, the probability of reaching the profit exit state regulation before the price fluctuation touches the stop loss state regulation.
18. Systematic trading method
In order to quantitatively evaluate the behavioral consequences of financial investment, it can only be realized through a programmed trading system. No matter what happens in the investment market, it is ultimately reflected in the price, volume, and time. Then we respect the objective and actual behavior of the market, and use the three factors of price, volume, and time to define the transaction state and make a mathematical model. Then check all the historical charts to obtain the quantitative results of the following indicators: odds of winning, profit-risk ratio, probability distribution characteristics, signal occurrence frequency, probability of artificially uncontrollable risks and single maximum loss amount, average annual rate of return, 10-year capital change curve, etc. If the quantitative results are operable under a sufficient number of samples, then we only need to strictly implement it in the future.
19. 2% principle
The 2% principle is the account fund risk management principle advocated by me. In other words, any single risk amount must be less than 2% of the total account funds. So how to actually implement this principle in the actual investment operation?
The specific method is as follows. When designing a trading plan, subtract the price when the specified stop loss occurs from the price when the specified state of entry occurs to obtain a difference M. The difference M is the basic trading unit (one lot for futures, one stock for stocks) is one share.) transaction risk. The quotient obtained by dividing 2% of the total account funds by M is the number of futures contracts (or shares) that should be traded.
For example, assuming that the total amount of funds in the account is 1 million, in any transaction, if the risk occurs, the loss of funds must be less than 20,000. If the risk of one lot is 100 yuan, you can trade 200 lots; if the risk of one lot is 200 yuan, you can trade 100 lots; if the risk of one lot is 400 yuan, you can only trade 50 lots.
To manage account risk with the 2% principle, in terms of behavioral results, the probability of being wiped out by the market in the form of continuous losses is 50,000 times smaller than the probability of a plane crash.
20. On the effect of using technical modules
The use effect of the technology module does not depend entirely on the nature of the module itself, but to a greater extent depends on the combination of the two.
① The module matches the user's psychological characteristics: any technical module is embedded with the developer's psychological characteristics during the development process. If the psychological characteristics of the developer do not match those of the user (for example, one of the psychological characteristics of the two is adventurous and aggressive, and the other is conservative and stable), then any technical module of any nature cannot have a good use effect. In the 1970s, the "black box" was popular on Wall Street in the United States, but it ended in failure. This is the reason.
②The modules match the characteristics of the operated funds: the characteristics of funds are generally manifested in three aspects, risk tolerance, profit expectation and use cycle. If funds with low risk tolerance are operated with technical modules characterized by high risk and high return, the entire operation may end in loss due to breaking the bottom line of risk. If a module with a long cycle is used to operate short-term funds, the average probability may not be reflected due to insufficient number of operations, and the entire operation may end in a loss.
21. Prerequisites for using system transactions
The traded positions and market prices are relatively static is a prerequisite for using the system to trade. In other words, the market price will not be driven by the intervention of the traded position. If the traded position accounts for a large market share, which is enough to drive the price, this is a strategic investment with market implications, and systematic trading methods cannot be used.
4. Relevant issues within the scope of schematized transactions
1. "Trading with the trend" is the basic principle of technical investment operations
The premise of "trading with the trend" is to clarify the direction of the "trend" in advance.
"Trend" is a concept in Dow Theory.
In Dow Theory, ascending "trends" are described by ascending tops and bottoms; descending "trends" are described by descending tops and bottoms. However, in the Dow Theory, it is not clearly stated what level of "top and bottom" is used to describe which level of "trend".
For example, use N zenith (all transaction prices in the N/2 trading days before the top and N/2 trading days after the top are all lower than the top price.) to describe the main-level positive wave. Use M zenith (all transaction prices M/2 trading days before the top and M/2 trading days after the top are all lower than the top price.) to describe the secondary reverse wave. So how to determine the range of N and M numbers, this problem has not been solved by Dow Theory. However, this is a common problem that all financial investors must face. In view of this, we have made a research plan on this problem, conducted special research, and reached some conclusions. You can also go back and do your own research. In short, this problem must be solved.
"Trading with the trend" is to formulate and execute a long "trading plan" in an uptrend; to formulate and execute a short "trading plan" in a downtrend.
"Trading with the trend" cannot be simply understood as the concept of "buying in a rising trend and selling in a falling trend".
What if I buy or sell the wrong item? There must be countermeasures; if you buy or sell right, in what state will you close the position? Rules of conduct should also be clear.
2. Two commonly used methods of building positions in technical investment operations
①In an uptrend, buy at the bottom of the adjustment pattern; in a downtrend, sell at the top of the adjustment pattern.
② Follow up when the adjustment form breaks through.
3. Emphasize the planning of operational behavior
In the process of financial investment, the planning of behavior must be emphasized, and the randomness of behavior must be avoided.
"Insist on executing the trading plan" is the lifeline of financial investment. However, the premise of "sticking to the execution of the trading plan" is that a clear "trading plan" must be formulated before the transaction.
The so-called "trading plan" refers to a clear entry regulation (regulation of opening position status), plus two clear exit regulations (regulation of loss exit status and profit exit status regulation).
4. The results of a single or staged behavior cannot indicate the nature of the behavior method
Many investors use a single or staged behavioral result to indicate the nature of the behavioral method, which is wrong. This is like drawing a five-pointed star on a piece of paper. When we look at the paper in its entirety, we can draw an accurate conclusion that it is a five-pointed star pattern. But if we only look at one part of it, and that part happens to be free of scratches, we might conclude that there is nothing on the sheet. Similar biases to the examples above are likely to occur if we characterize behavioral approaches in terms of single or phased behavioral outcomes. When we use a fixed method for trading, we cannot judge it as a good scientific method because of its single or phased good performance; nor can we judge this method because of its single or phased poor performance It's not a good approach to science. In conclusion, a single event or staged performance is meaningless, and the nature of the behavioral approach must be judged on the basis of comprehensive measurements (measured in the context of global financial databases).
5. Preferences of human thinking and memory
The preferences of human thought and memory can also induce us to misjudge the nature of behavioral methods. Generally speaking, it is easier for people to remember things that he likes to remember and is willing to remember, such as "earning experience". Rejection of memory He does not like to remember and is unwilling to remember things, such as "loss experiences". Such thinking and memory preferences may lead to inaccurate judgments about the nature of our behavioral methods. As a financial investor, we must consciously overcome this weakness of human nature.
6. Use the "rule of thirds" way of thinking to understand price movements
People are used to the "dichotomy" way of thinking, that is, the "either-or" way. Using this way of thinking to understand prices, the conclusion drawn will be "either up or down".
However, more than 1/3 of the price movement is adjusted horizontally, and there is a state of "either one or the other".
Therefore, we must use the "rule of thirds" thinking method to understand price movement. This is of great significance for formulating investment plans. When we formulate investment plans, we should try our best to avoid the horizontal adjustment stage.
7. The principal is greater than the opportunity, and the opportunity is greater than the profit
In the process of financial investment, the safety of principal is the first priority. Trading opportunities can be given up in order to ensure the safety of principal. This is the principal is greater than the opportunity.
When there is a certain floating profit in the position, in order to win the opportunity of a big trend, you can give up the vested floating profit. This is where opportunity outweighs profit. The vast majority of investors, when there is a certain floating profit in their positions, will worry about gains and losses, and are eager to cash out small profits, thus losing the opportunity to win a round of big trends. This is not daring to win.
Dare to lose and not dare to win is a common problem of most investors, and daring to win is the last hurdle to become a professional investor.
8. Three basic questions
As far as schematic trading is concerned, investors should ask themselves three basic questions before any investment decision:
①Is my transaction following the trend?
②Is the risk of this transaction clear?
③If the risk occurs, can I accept it calmly?
If the answers to the above three questions are yes, you can make a trading decision.
If the answer to any of the above three questions is no, no trading decisions can be made.
9. The profit and loss of the transaction result cannot be used to measure the right or wrong of the transaction behavior
In the scope of schematic trading, the right or wrong of behavior cannot be measured by trading profit and loss.
For a loss-making transaction, if the investor executes the transaction strictly, but the loss is caused by a small probability event, the investor's investment behavior may be correct; for a profitable transaction, if the investor does not strictly follow the Execute the trading plan and exit the market profitably when the price does not reach the profit target, then the investor's investment behavior may also be wrong.
In short, the only criterion for judging whether an investment behavior is right or wrong is to see whether investors strictly implement the trading plan. The profit and loss of the transaction result cannot be used as the judgment standard.
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