章节 4  Trading Assumptions

As a former accounting student, I recall my professor discussing various accounting assumptions in class, such as accounting entity, going concern, accounting period, and monetary unit. At the time, I didn't fully comprehend why these assumptions were so crucial to the discipline. It seemed like another set of concepts to memorize for exams. However, after studying logic, I came to understand that the foundational assumptions of a theory or discipline are its essence. While researching trading systems, I discovered that the more rigorous the underlying assumptions of a trading system, the greater its applicability and the clearer its execution for traders. Novice traders often rely blindly on technical indicators, without understanding the underlying assumptions of their trading system, leading to unsuccessful trades.
Technical analysis is familiar to people who have learned a bit about it, and it includes three major assumptions: prices move along trends, history repeats itself, and market prices reflect all information. However, I can assure you that 90% of people dismiss these three assumptions as nonsense and go straight to looking at patterns such as head and shoulders, triangles, diamonds, etc. As the saying goes, being greedy for small gains can lead to great losses, and shortcuts can often result in taking longer routes. Those who aim to become rich overnight often fail. For example, why does history repeat itself? This assumption has different interpretations for different people. Personally, I believe that history repeats itself based on the background of largely unchanged participants. If all participants in the market were replaced, would the previous price trends still repeat? I won't provide the answer to this question yet; instead, I'll offer a recent example.
In September 2015, Chinese regulators implemented policies to curb speculative trading in domestic stock index futures, believing that it had contributed to the sharp decline in A-share prices. As a consequence, the trading volume of stock index futures reduced by 99%. Speculators who used to trade stock index futures then turned to commodity futures as an alternative, resulting in changes in the composition of commodity futures traders. Such changes in market participants can lead to alterations in price volatility, as evidenced by the chart below, which shows a notable example using coke futures.
Trading Assumptions-第1张图

The chart above shows the continuous main contract of coke futures. It is evident that there was a significant change in both intra-day and inter-day volatility of coke futures after the regulatory authorities suppressed speculation of stock index futures in September 2015. Using September 2015 as the dividing point, the left and right charts seem to represent completely different varieties. Therefore, the price trend in the left chart may not hold any reference value.
These changes caused many old futures traders who relied on technical analysis as the core model to experience failures with their trading systems, resulting in losses and bankruptcy for some. Thus, it is crucial to conduct research on the prerequisites of trading systems to avoid uncertain results.
Whether a trading system is based on fundamental or technical analysis, there are corresponding assumptions that exist, and the central issue always comes back to human beings. For instance, in an extreme scenario where a pandemic wipes out most of humanity and only 20 people are left in the world, will the supply and demand theorem of fundamental analysis still be valid? Will the historical repetition of technical analysis still occur? Does the reference value of the head and shoulders structure still/>/>

关于我们 用户协议隐私政策风险披露认证协议社区准则 帮助中心 意见反馈
App Store Android

风险披露

金融工具交易属于高风险投资活动,有导致部分或全部投资本金损失的风险,可能不适合所有投资者。本网站所包含的任何观点、聊天信息、通知、新闻资讯、研究调查、分析、价格或其他信息都是作为一般市场信息提供的,仅供教育和娱乐之用,并不构成投资建议。 所有的观点、市场行情、推荐或任何其他内容可能随时会改变,恕不另行通知。Trading.live对因使用或根据这些信息而直接或间接造成的任何损失或损害概不负责。

© 2024 Tradinglive Limited. All Rights Reserved.