Everyone often talks about the trading system, saying that you have to wait for the trading system to give an entry signal to enter the market, or to exit the market after a dangerous signal is given, and so on.
So what exactly is a trading system?
The trading system is the product of systematic trading thinking and a code of conduct for trading.
What does that mean? That is to say, when we just entered the financial market, we only realized the parts of the market. With the continuous accumulation and deepening of the understanding of these parts, we realized the whole of the market and the connections between the various parts that constitute the whole of the market, and finally formed a pair of Systematic cognition of the market, and then trade with systematic thinking.
In other words, systematic trading is a trader's overall understanding of the market, and trading in a regular, intuitive, and quantifiable way .
To put it more simply, it is to enter the market according to the signal given by the trading system, or to close the position and exit the market .
Does that mean that without a trading system, it is impossible to survive in the financial market?
The answer is yes.
On the one hand, market price fluctuations are generally complex and disorderly. What we have to face is not only the price fluctuations themselves, but also the complex factors behind the price fluctuations, and various risks in the financial market. etc.
On the other hand, what we have to face is the uncertainty and instability of human emotions. Recall, have you often seen the price rise or fall, and you rush into the market to chase the rise and fall, and then you encounter a ruthless lesson from the market; Being slapped left and right by the market...
It is precisely because of this variety of complexity and uncertainty that most people end up failing.
That is, without trading in a systematic manner, one cannot overcome these complexities and uncertainties, and thus cannot survive in the market.
Therefore, if you want to survive in the financial market for a long time, you must build an effective systematic trading method. Through long-term observation, summary and classification of the market, you can summarize the entry and exit signals, and trade at the right time.
That is to trade according to the trading system, to quantify all the complexity and uncertainty, to deal with the ever-changing market with unchanging rules , so that all transactions are regular and intuitive, and maintain consistency And consistency, in order to survive in the market and finally achieve stable profitability.
And a trading system is the brainchild of a trader, which embodies the trader's trading philosophy or trading philosophy. Therefore, it may not be suitable for everyone, that is to say, a trading system can only exert its maximum effect in the hands of its creator.
We often see some traders get a trading system from others, but they are not ideal when they trade. Even if they can make stable profits in the end, it must be based on their own personality, habits, etc., after a long period of running-in period, and finally adjust this trading system to a trading system that suits your actual situation.
Therefore, for traders, only by creating their own trading system can they embark on the path of stable profitability . (Including adapting someone else's system to your own.)
So how can we build our own trading system?
An effective trading system must include three factors: 1. A set of analysis methods (including fundamental analysis and technical analysis) ; 2. Risk control; 3. Fund management.
Risk control and fund management are easy to understand. These need to be set by traders according to their own personality and habits, etc., and then constantly adjusted in actual transactions, and finally form stable rules.
Among these three factors, the latter two are based on the first one, so the analysis method is the most important thing in the trading system.
As for the advantages and disadvantages of basic analysis and technical analysis, we will not discuss them in detail here. Let’s put them aside and discuss technical analysis in detail.
There are many kinds of technical trading systems, including trend trading system, counter trend trading system, shock trading system, breakthrough trading system, hedging trading system and so on.
As we all know, the key to trading profitability is the ratio of winning ratio to profit-loss ratio. In the previous article, we have discussed that the high profit-loss ratio mode has a higher probability of success, and the trend trading system belongs to the high profit-loss ratio mode.
Therefore, let's discuss in depth, how to build your own trend trading technology system?
First of all, it must be clear that no technology can be 100% correct, and any technology has its failure rate, and the most important thing in trading is to reduce the failure rate.
Take the worst coin toss, which has a 50 percent chance of being right and a 50 percent failure rate. Suppose we use three independent technologies to verify each other to form a technical system, and the failure rate of each technology is 50%. From the mathematical principle, it can be concluded that 50%×50%×50%=12.5%, that is to say, The failure rate of the technical system composed of these three independent technologies has dropped to 12.5%, which has become a very good system. And if it is a system composed of three common technologies with a failure rate of 40% or 30%, the final result will be very excellent.
So how to define mutual independent verification between technologies? That is, three different technologies or indicators are independent and verified.
For example, if we choose the trend line as the standard to measure the trend, we can no longer use the moving average to verify it independently, because they are all tools to measure the trend; or if we use MACD as the standard to measure the trend, we can no longer use RSI to independently verify it authenticating.
Of course, if you have to put them together, it’s okay, but it won’t be able to verify each other, because the underlying logic behind them is similar, and from a mathematical point of view, it’s impossible to reduce their failure rate.
Then why not one? Can two, four or more technologies be verified independently of each other, but three must be? Not impossible, the reliability of one or two technologies will be relatively low, and we need to reduce the failure rate as much as possible, we must add as many independent technologies as possible for verification, but each time an independent technology is added, While reducing the failure rate, it will inevitably bring its negative impact, such as fewer entry positions, or increased market noise. Therefore, generally speaking, three mutually independent technologies are verified to form a technical system, which is a more appropriate value under mutual trade-offs.
You may say again: "It is said that the road is the simplest, and you have added so many rules, isn't it making the transaction more complicated?"
"The Great Way to Simplicity" means that the benevolent see benevolence, and the wise see wisdom. In the financial market, its "simplification" is to see that its core essence is the game spread.
The financial market is second only to war, where the game is the most intense and cruel. Do you really believe that it is easy to make a stable profit?
For example, artificial intelligence has surpassed human beings in many aspects. If you insist on mentioning "the road is as simple as possible", do you think the program code behind it is just one or two lines of simple code?
Therefore, "The Great Way to Simplicity" does not mean that everything should be "simplified", but to see its essence clearly and simplify it at the level of "Tao" - to deal with the ever-changing market with unchanging rules; At the level of "technique", it does not have to be very "simple", but some tools can be used appropriately.
After understanding this truth, the key to the problem is how to find these three mutually independently verified technologies to create a trend trading technology system.
Based on years of experience, a technical framework can be formed from three aspects: potential, position, and state .
* Momentum : Refers to the trend of measuring prices. For example, use trend lines, moving averages or wave theory to measure, etc.;
* Bit : Refers to where the current price is measured. For example, it is measured by horizontal position and golden section position;
* State : refers to the market form and K-line form.
If you follow these three mutually verified technologies to build a system, then the technology system you build will be very reliable.
Some people may say what about naked K traders? They only have naked K. In fact, even they cannot escape the framework of "potential, position, state".
Why do you say that? because:
1. The naked K itself is one of the K-line forms in the "state", and the market forms include W top-bottom, triple top-bottom, head-shoulders top-bottom, triangle, box shape, etc. As long as these are technical analysis traders, they must Neither will be ignored.
2. Naked K traders must also combine "levels" to trade. Even if they do not use the golden section, they still need to combine the high and low points of the market for stop loss or profit, and the high and low points of the market are horizontal support levels or pressure levels.
3. Naked K traders must also trade in combination with "potential", because all technical analysis is based on three basic market assumptions: market behavior is inclusive and digests everything; prices evolve in trends; history will repeat itself . And "price evolves in a trend" is very intuitive on the chart, and it is fully displayed. And the premise of the effective reversal pattern and continuation pattern in K-line theory must be that there has been a wave of trend in the market before. It's just that they don't use other auxiliary tools to measure trends, but they must have the concept of "trend" in their minds; and many of them use "Dow Theory" to measure trends, and "Dow Theory" is also very intuitive. Just here.
The crux of the problem is not that it is better not to use auxiliary tools, or that it is better to be useful, but that as long as it suits you, it is the best.
Therefore, if you want to build a trend technology system, please follow the framework of "potential, position, state" so as to build a reliable technology system.
Having said so much, let’s use the trend line’s “potential, position, and state” framework as a specific example based on the recent gold trend:
First of all, introduce a concept. Many people think that the level or trend line is a simple line. In fact, their resistance is a range, not a simple line.
1. The drawing method of the trend line is the simplest two-point line (two red arrows) - black downtrend line, and a red downtrend line should be added to the downtrend range. So how do you usually find this interval? Just look at the contacts, the more contacts the more effective, there is a contact at the position of the red circle in the figure, forming a downtrend range.
2. If you are bearish, in the position of the blue circle, the price touches the downtrend range again, and it is more radical to go short directly. The more conservative approach is to wait for the K line to close, observe the shape of the K line, and the first K line closes to the positive line If you can’t see the strength of the short position, then you have to wait a little longer. The second K line closes and almost engulfs it. At this time, it is "potential + state", you can enter the market to short, stop loss outside the falling range.
3. How to look at the take-profit position? Generally speaking, the golden section 100 position (purple line) is a strong resistance zone. If the price slowly falls to this position and stops falling, the closing line will bring the lower shadow line, and it will be necessary to drop again Reducing positions or exiting the market depends on your own space and level. Some people will not enter the market until they break the downward trend.
The actual situation is that it directly breaks down sharply and then pulls back. The two negative K-line entities are both long, which means that the bears have sufficient strength. ) resonance bit.
4. The market has accelerated its decline to form an accelerated downward trend (blue arrow). At the position of the yellow circle, the closing line of the K line appears engulfing again. At this time, it is also a "potential + state".
5. Generally speaking, when the market reaches the target position, you can exit the market, but the closing line of the K line is a negative line of the entity, and you can also lighten up part of the position, and exit the market after breaking through the blue accelerated trend line.
6. At the position of the green circle, there are two lower shadow lines in the market, indicating that strong support has been encountered. Generally speaking, if you short at the beginning, the space to look at is the resonance position between the golden section 161.8 position and the daily low point level (green line) , as soon as you reach the position, you can enter the market, or if you break through the blue accelerated decline line, you must enter the market.
1. The previous empty order is in place to enter the market, and then the market forms a small W bottom. If you turn to be bullish, you can enter the market and do long at this time, because it is "position + state + state" at this time, that is, horizontal support Position + market pattern + K-line pattern is an opportunity to enter the market with a high winning rate. The target can see the downtrend line or combine with the daily line to see a higher target, which depends on your space and level.
2. There is a second point at the position of the red arrow. According to the principle of two points and one line, it can be assumed to draw an upward trend line, but it is pierced later, and the upward trend line must be corrected at the position of the blue arrow.
3. The "potential + position" pressure level appears at the position of the yellow arrow, that is, the downward trend line + small horizontal pressure level. At this time, if you are long and do not enter the market, you must also reduce your position and break through the upward trend at the position of the green circle The line is about to appear.
4. After the market pulls back, a second-level blue upward trend line appears, and a double lower shadow line appears at the position of the blue circle, which proves that the trend line is valid, and you can go long, or you can wait for the market to test again before entering more. But sometimes the market will not give this opportunity, or if you feel that the profit-loss ratio is inappropriate, then give up this opportunity.
5. If you are long, when the market reaches the level near 1920 and there is a "position + state" pressure level, you have to reduce your position or exit the market. This depends on the target position you saw when you entered the market before, or sometimes , the market will form a channel, and when the "potential + state" pressure level appears around 1930, it must be out.
6. Generally speaking, when the market pulls back to the yellow circle position, although it is still on the trend line, there are two negative lines with a little lower shadow line, but the big negative line in front is too strong, it is better to wait and see at this time; if you are more aggressive For traders, enter the market and do long, as long as they strictly break the line and stop the loss.
7. When the market effectively breaks through the trend line and then retracts within the trend line, it is necessary to correct the trend line (black line) at this time. After that, the position of the black circle is a more aggressive entry to do long positions, but the position of the red circle behind is a Very high-quality entry to do long positions, because this time is the resonance of "potential + position + state", that is, sticking upward trend line + golden section 61.8 position + K-line form, the winning rate is extremely high.
8. If you are long, when the market reaches 1930 and there is a "position + state" pressure level, if you do not enter the market, you must reduce your position. If you fall below the upward trend line, you must exit the market.
Of course, the above technical analysis is an "afterthought". In fact, every current situation is much more complicated. Using the trend line as an example, I want you to know how to combine "potential, position, State" has a more intuitive experience.
And it is not recommended that you directly apply the trendline technical system. Before you have a specific understanding of the advantages and disadvantages of a technical system, please be cautious.
What needs to be reminded is that it is best to only do one-way market entry transactions, that is, if you are bullish, you only do long, or if you are bearish, you only do short, otherwise it will affect your judgment on the overall situation of the market.
Don't fantasize about eating up all the bands of the market. You must have the wisdom of "three thousand weak waters, just take a scoop to drink" . While "taking", you must also know how to "let it go".
The process of building a trading system is destined to be a long and painful process. Only after you continuously test, verify and adjust can you gradually build a stable technical system, and then combine risk control and fund management to formulate comprehensive trading principles. Finally, a complete set of positive expected value trading system is formed.
And always adhere to principles, observe discipline, and maintain consistency in transactions, then the realization of financial freedom is just around the corner!
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