We all know that the market price evolves in a trend way , which is also very intuitive and clear at a glance. If we can capture the trend well, we can undoubtedly obtain higher profits.
In the previous article "How to build a reliable trend trading system? ", I have already talked with you about the framework of trend trading- potential, position, and state ; and trend is the most important component, and it is also the basis of the concept of trend trading.
But how do we judge the trend? In other words, how to do a good job of trend trading?
Trends are a matter of opinion for everyone. Each of us has a different understanding of trends, which naturally prompts us to define and judge trends differently.
However, this is not the point. Everyone can have different definitions and judgments on trends, and many people agree with trend trading, but the trading results have been unsatisfactory. A big possibility is that they have not figured out the key points!
So what's the point?
This key point is: whether the tools you use to measure trends are highly operable.
The market as a whole is chaotic, unpredictable, and a combination of linear and nonlinear.
For such a market, you must first understand that if you want to grasp all the trends in the market, it will definitely disappoint you, and it will be futile!
Then in the face of a chaotic market, how do we judge the trend?
As Kant said: "Man legislates for nature" , you also legislate for the market .
What does that mean?
That said, first you have to define the trend yourself and have a tool to measure it effectively. This tool doesn't have to cover every trend in the market, but as many as possible, the better.
Then, to do a good job in trend trading, the key point is that this tool must be highly operable.
What does high operability mean?
That is to say, your tool should be able to better measure the market trend, without ambiguity in definition, be highly standardized, and provide very specific rule guidance and basis for your entry and exit in operation.
In layman's terms, this tool can provide you with a very clear trend entry and exit signal, and there is no ambiguity.
There are many trend theories on the market, such as Dow Theory, Wave Theory, Trend Lines, Moving Averages, etc. All the theories are different, or vary widely, but they all have loyal fans, so their operability How about sex?
Let's first look at the Dow Theory's definition of a trend: In an uptrend, the highs are higher and the lows of the callback are also higher; in a downtrend, the lows are lower and the rebounds are higher. One is lower than the other.
Opening a chart of a variety, the trend shown in front of us is generally very intuitive-rising, falling or sideways, and it is generally feasible to use Dow Theory to make judgments.
But how does this work?
In a rising market, if you want to go long, where should you go long? What price? The Dow Theory only says that the low point of the callback is higher than the other, so how much higher? Is it 1:00? 100 points? Or 500 points? If everything works, then the stop loss space may be very large!
Therefore, Dow Theory can be used as a method of strategic judgment, but if it is used as a tool for tactical entry and exit, its operability is relatively low.
The same is true for the wave theory derived from the Dow Theory. It only tells you the shape of the wave, but cannot tell you the approximate entry position, which leads to the embarrassing situation of "thousands of people and thousands of waves". It is in the shape of a wave, no matter how you divide the position of the wave, it makes sense.
Therefore, the operability of the wave theory is also low, at most it can only be used as a strategic judgment, and then measured with other tools.
As for tools such as trend lines and moving averages, let’s not talk about their actual effects. By distinguishing the online or offline position of the price, they are used to divide the trend, which is more obvious and more operable.
Therefore, no matter what tool you choose for trend trading, it must be able to measure trends effectively and be highly operable.
So how do we choose tools, and then do a good job in trend trading?
You can refer to the following three points:
One, the tool should be able to clearly define trends and be highly operable.
That is to say, the trend measurement tool you choose should be able to clearly define the trend, there is no ambiguity, and it can be used as an effective basis for entering and exiting the market. (This is the main reason I chose trendlines as a tool.)
Second, there must be auxiliary tools to make up for its shortcomings.
Regardless of any tool, if there are advantages, there must be disadvantages, so you have to choose some auxiliary tools to make up for its shortcomings, so as to make a good deal.
Third, formulate a suitable trading strategy.
Many people think that there is a disadvantage of trend trading, that is, to hold a profit position until the trend reversal is confirmed, and often a large part of the profit will be given back. In this regard, in fact, part of the profits can be kept by formulating a lightening strategy to avoid large profit-taking or turning into losses.
Everyone's strategy may be different, as long as it can be properly balanced, the trend will continue or evolve into a reversal.
When you have a highly operable tool that can effectively measure the trend, then combine the "potential, position, state" framework to build a complete trend trading system and continuously optimize it, and then you will never stop on this road Moving forward in Yudi will eventually achieve your future and reach the other side of wealth!
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