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Based on incomplete data, there are nearly a hundred trading methods available in the market, and over ten major trading schools. Unfortunately, some of these schools are skilled at ensnaring novice traders with common misconceptions, leading to years of wandering in the wrong direction. In this section, we aim to explore these typical trading mistakes.
Traditional trading schools can be categorized into two main types: fundamental analysis and technical analysis. While some traders may further classify them into areas such as capital and psychology, I believe that these classifications are simply different ways of observing things and do not extend beyond the scope of fundamental or technical analysis.
Let's start with fundamental analysis. Generally, fundamental analysis focuses on the words --"supply" and "demand." In other words, fundamental analysis studies the relationship between supply and demand through data and logic. Though it may sound simple, I believe that most traders who use fundamental analysis only believe they are using it, but in reality, they are "Monday morning quarterbacking." This means they impose their own imagined logic onto the technical chart. Alternatively, they may skim a few headline articles and industry research reports online, follow market hot spot information, or even conduct investment research analysis that resembles the work of inexperienced individuals, some of whom may not even understand the core market logic.
For instance, statistics on the rise and fall of the Hang Seng Index during the past 30 years of Chinese New Year, the performance of the S&P 500 when the US bond yield surpassed 2% in the last decade, and the rise and fall of the US dollar index in January each year over the past 20 years are all illusions created with no logic and subjective imagination. With time, there may be researchers who study the connection between weather and the Hang Seng Index. Actually, anyone who has conducted scientific research knows that correlation is the easiest thing to forge. In a sufficiently large sample size, any two sets of data can find a certain degree of correlation. However, the human brain struggles to grasp the idea of randomness. Most people confuse correlation with causality, believing that if event A precedes event B, then event A is the cause of event B. This is called coincidental correlation, a common logical fallacy.
In my view, traders who rely on fundamental analysis as their trading strategy should first establish a logical model. Different traders may establish divergent logical models, which may even be diametrically opposed or contradictory. Ultimately, a trader's trading model is essentially a projection of their own personality traits. I cannot help but mention a very typical phenomenon in social science that is highlighted to the extreme in the economics and investment fields. Almost every event in the economics field is controversial, and as the saying goes, the truth becomes clearer as it is debated more. However, in the economics field, the more it is debated, the more confusing and chaotic it becomes. Unlike technical analysis, traders who use fundamental analysis for trading do not typically reach a consensus. Many traders have flaws in their logical models, but their eloquence makes it easy for them to stir up the investment atmosphere in the entire trading room and lead the entire team in the wrong direction. Therefore, if most traders in a trading room use fundamental analysis for trading, you will find that the management difficulty of the entire trading room has greatly increased. Unlike technical analysis, fundamental analysis has a significant problem, which is that it is challenging to falsify, or the cost of falsification is too high. Therefore, even a minor mistake can have a significant impact.
The most significant danger that traders who employ fundamental analysis face is the illusion that they possess a profound comprehension of the market. Psychological experiments have revealed that the more time and energy traders invest in studying the market, the more their confidence grows. However, this often results in an overestimation of their capabilities, leading to problems that they are incapable of handling. In fact, we consider fundamental analysis to be/>/>/>/>/>