Smiling proudly at the stock futures exchange, smashing Wall Street! Hello everyone, welcome to the Technology Paradise, I am Lao Zou, the owner of the park. Starting today, Lao Zou will explore the vast world of currency futures with you, and thus open the door to wealth and freedom!
Whether it is currency futures or stocks, what is the most important point in your investment career? Of course it is to follow the trend! The so-called don’t follow the market blindly, which means you need to see the general trend clearly; while emphasizing the trend and not the price, it means paying attention to the trend; and “don’t lose the big because of a small one” and “revelation from breaking through the high and low points of the previous market” are still talking about the trend importance! Therefore, when we enter the world of currency futures, we must know how to follow the trend so that we can make money.
Well, the lecture on currency futures starting today will focus on this "trend". When it comes to trends, of course it is inseparable from the classic theory in the field of technical analysis: Dow Theory.
Before Dow Theory, let's do four things first: first, define technical analysis; second, discuss the philosophical premise or basic principle on which technical analysis is based; Separate from basic analysis; finally talk about several common opinions against technical analysis.
It is my firm belief that technical analysis can only be fully understood and mastered if one has first figured out what it does, especially its theoretical basis.
First, we define. Technical analysis is the research on market behavior with the purpose of predicting the future trend of market price changes and using charts as the main means. "Market action" has three meanings: price, volume and open interest, which are the sources of information usually available to analysts. Another concept "price change" is also commonly used, but it seems too narrow, because most analysts also use trading volume and open interest as part of the analysis data. In the following discussion, "price change" and "market behavior" are used differently in these two senses.
What we usually call technical analysis has three basic assumptions or prerequisites: 1. Market behavior is inclusive and digests everything. 2. Prices evolve in a trending manner. 3. History will repeat itself.
Among them, "market behavior is inclusive and digests everything" constitutes the basis of technical analysis. Unless you have fully understood and accepted this prerequisite, the following discussion is meaningless. Technical analysis considers that any factor that can affect the price of a commodity currency futures: fundamental, political, psychological or any other - is actually reflected in its price. It follows from this that studying price changes is what we must do. This assertion may sound too arbitrary at first glance, but after careful consideration, there is really nothing to say.
The essence of this premise is that price changes must reflect the relationship between supply and demand. If demand exceeds supply, prices must rise; if supply exceeds demand, prices must fall. This law of supply and demand is the starting point of all economic, fundamental forecasting methods. Turning it around, then, as long as the price rises, no matter what the specific reason is, the demand must exceed the supply, which must be optimistic from an economic basis; if the price falls, it must be bearish from an economic basis. You see, how strong the flavor of fundamental analysis is in this passage, but don't be surprised that it appears in our purely technical analysis article. At the end of the day, technical analysts study the economic fundamentals only indirectly through prices. Most techies would also agree that it is fundamental supply and demand, the economic fundamentals of a commodity, that determine whether the market for that commodity is bullish or bearish. The chart itself does not cause the market to go up or down, it simply shows the prevailing optimism or pessimism in the market.
Chartists are often oblivious to why prices go up and down, and in the early stages of a price trend or when the market is at a critical turning point, often no one understands exactly why the market is behaving in such an odd way. Precisely at this crucial moment. Technical analysts often find their own way, to the point. Therefore, as your market experience becomes more and more abundant, the more you encounter this kind of situation, the more irresistible the ability of "market behavior is inclusive and digestible".
It stands to reason that since all factors affecting market prices must be reflected in market prices in the end, it is sufficient to study prices. In fact, chart analysts just let the market reveal its most likely trend by studying price charts and a large number of auxiliary technical indicators, rather than "conquering" the market with his shrewdness. All technical tools discussed hereafter are merely aids in market analysis. Technologists certainly know that there must be reasons for market ups and downs, but they think that these reasons are irrelevant to analysis and forecasting.
The second prerequisite is: the price evolves in a trending manner.
The concept of "trend" is at the heart of technical analysis. Again, unless you also accept this second premise, don't read any further. The whole point of studying price charts is to reveal a trend in an early stage of its occurrence and development in a timely and accurate manner, so as to achieve the purpose of trading along the trend. In fact, most of the theories in this course are essentially following the trend, that is, the purpose of judging and following the established trend. In the chart, we have drawn the trend of the Shanghai Composite Index. Only if you recognize this trend, can you trade along the trend.
From "the price evolves in a trend way", it can be inferred naturally that for an established trend, the next step is often to continue to evolve along the direction of the existing trend, and the possibility of turning around and going the other way is much smaller. This is of course an application of Newton's law of inertia. You can also put it another way: the current trend will continue until it turns around and reverses. Although these few sentences are almost like a reel of words, there is only one meaning that is repeatedly emphasized: to unswervingly follow an established trend until there are signs of the opposite. This is where trend following theory comes in.
The third prerequisite is that history repeats itself.
Technical analysis and market behavior are inextricably linked to human psychology. For example, price patterns, they are expressed through some undetermined price chart shapes, and these graphics express people's bullish or bearish psychology on a certain market. In fact, these graphics have been widely known and classified in the past one hundred years. Since they have worked well in the past, it might be a good idea to assume that they will work in the future as well. Because they are based on human psychology, and human psychology has always been "the country is easy to change and the nature is difficult to change". "History will repeat itself" specifically means that the key to the future is hidden in history, or the future is a replica of the past.
At this point, you may have a question: Isn’t there two schools of investment analysis, technical analysis and fundamental analysis? Why do we learn technical analysis first? We'll save this for the next class, and that's all for today's class, thank you all.
Add
