Generally, traders are used to talking about shocks and trends, or it is more appropriate to change it to balance and imbalance.
What do we really know about price? Excluding those assumptions that people say what they say, I think there is only one: it is always changing, or in other words, it is fluctuating.
Since it is volatile, there is volatility, and there is convergence and expansion of volatility. These two correspond to the equilibrium state and the imbalance state of the market respectively.
Trading can be done from a different angle, without considering long-term trends, medium-term trends, short-term trends, or we can even remove the word trend. Naturally, as its opposite, the shock can also be removed.
When the price is in a state of balanced fluctuations, it is impossible to make money. This is a state in which the market operates efficiently. He is very shrewd, good at calculating, and has good ears and eyes. He knows all the main information in the real economy and has made assessments. Therefore, the quotation given is very reasonable and there is no room for arbitrage.
The so-called equilibrium here is also a relatively macro description. The market is always changing, and absolute equilibrium does not exist. Just like the earth before an earthquake, it seemed calm, but in fact, the small vibrations did not stop for a moment, but the various forces could restrain each other and maintain stability.
As told, the time to wait is out of balance! The imbalance is due to a new event in the real economy. The event may be a sudden panic, or it may exceed expectations, or it may be unprecedented. , so the quotations given are unreasonable and need to be continuously revised, thus creating a continuous wave of market prices. In the later stage of the market, the market has overcorrected and may fall into irrational frenzy, and the quotations given are even more outrageous.
Anyone who wants to make money from trading must obtain a price difference between buying and selling. Only in an unbalanced state can it be easier for us to capture this price difference. This is also the meaning of the message side. The story of waiting for a rabbit is familiar. I have written similar things before. The volatility converges to the limit, which is the stock we want to guard. This is the end point of equilibrium and the start point of imbalance.
We have to be clear about what kind of money we want to make when we come to the market? To me, that's money that's made in volatility expansion.
When volatility stretches to the limit and enters convergence, it's time to get out.
The convergence and expansion of a large cycle may take several months to complete. Therefore, for a corresponding product, there may only be one or two long-term trading opportunities in a period of time, or there may be no opportunities at all.
For specific technical tools, you can refer to Bollinger Bands. This indicator is excellent, with simple ideas and profound thoughts. It is one of my favorite indicators. I have made some improvements to it, making it more comfortable to use. In fact, I don’t change it. I adjust the parameters to my comfortable position, and it’s no problem to use.
Using Bollinger Bands or other similar volatility filtering channels, at any point in time, that is, on any trading day, make a cross-section, and the market is divided into 4 intervals by indicators from top to bottom:
Strong, strong, weak, weak.
Strong and weak are regarded as imbalance, while strong and weak are regarded as balance.
The price hardly jumps from one range to another. Basically, in a large capital market with abundant liquidity, the price walks between adjacent ranges in turn. Therefore, there are two options for prices in strong and weak ranges: stay where they are, or enter a strong or weak range. For prices in a strong range, there are three options: stay where they are, enter a strong market, and enter a weak market (the same is true for prices in a weak range, and there are also three options).
Therefore, when the price enters a strong or weak range, the surface market enters an unbalanced state. If you intervene at this time, there are only two ways to go. If it remains strong and weak, then of course it is good. If it is not strong or weak enough, then exit the transaction. That's it. There may be some loss, that is, stop loss.
What I like most is that the price hovers in a balanced range for a long time, and the volatility is constantly converging, converging, converging.
Condensed at one point, almost bursting.
This is the most anticipated moment, and the convergence limit of the big level is especially fascinating!
As a result, my main mode of trading has changed. K-line combinations, morphological analysis, orbits, crosses, and oscillators are not important, and may even be a kind of interference.
Now that the price has come to this point, is it important what path the market has taken in the past? I used to think it was very important, because we had to study "trends". Trends, trends, if you don't follow a wave, how do you know there is a trend? The turtle is the most classic trend trading rule, hitting a 50-day high... If it didn't rise a wave, how could it hit a 50-day high? Now that the 50-day high has been reached, it must have stepped out of a trend to some extent. We expect this trend to continue, so it is called trend "following".
Now my thinking has been adjusted, what I am pursuing is not the continuation of the trend, but the birth.
Everything is born of being, and being is born of nothing. Trends are born of shocks, and imbalances are born of equilibrium. I know what to focus on and what to ignore. As mentioned above, for a long period of time, there are few trading opportunities for a single product, the pressure to watch the market is very low, and the workload is greatly reduced.
Birth and follow-up are not contradictory. The first expansion of fluctuations is regarded as the birth. After the rest, the next birth in the same direction objectively has the effect of "two intermediate trends can be combined as different stages of a larger trend", that is, long-term trends, medium-term Trends, short-term trends and so on. And what if the imbalance of the next birth is in the opposite direction from the previous one? It is traditionally called a "trend reversal".
These are artificially added names.
This means that my basic model of the market has changed in my view. Traditionally, it is the "four seasons theory": the complete cycle of the market includes four stages, namely spring, summer, autumn and winter. In other words, bottoming, rising, topping, falling.
Now simplify it further, just 2 steps, expand, converge, expand, converge, expand...
As for the direction, it doesn't matter. When you reach the critical point, just take a gamble, or just wait for the iconic breakthrough to appear!
Author: Kim Seung-ho
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