I have always been interested in the topic of capital flow! I have always believed that in trading, those who can explore the financial logic behind the K-line and grasp the flow of funds can freely trade the market. The saying "the trading market is an ATM machine" will not be a dream.
First of all, what is the flow of funds, and why does the flow of funds play an important role?
We all know that prices are determined by supply and demand. When demand exceeds supply, prices will rise, and vice versa. Therefore, the continuous flow of funds into a certain currency means that there is a strong demand for the currency, which will promote the continuous rise of the currency price. Therefore, if the K-line trend can be used to dig out the flow of funds behind it, grasp the current supply and demand situation, and then be able to make predictions and judgments on price behavior, and gaining profits will be a matter of course.
Secondly, we must understand who is leading the flow of funds?
Anyone who trades knows that there are 4 trillion funds traded in the trading market every day. In such a huge market, only these few people can really dominate and play a decisive role: central banks, hedge funds, market makers and banks. and other financial institutions. These large institutional investors pay more attention to fundamental news. When there are economic data affecting a country or black swan news, they will often make trading decisions, which will affect the supply and demand of the market and cause price changes.
Since so many institutions are leading, does it mean that the flow of funds is elusive?
It will not be elusive, because the purpose of the institution's trading is to make a profit. Since it is to make a profit, after the institution enters the market, only when the market moves out of a certain space in the direction it expected, the institution will be willing to give up. Back to the initial state of finding the state of supply and demand. As shown below:
The two big negative lines marked 1 in the figure fell. Let’s assume that it was affected by data or news. In an instant, most traders were short-sighted and caused a rapid decline. Such a decline did not cause all funds to enter the market, it could only be Some people have entered (the funds will enter the market only after choosing a suitable price, and will not enter the market all the time). This caused a rebound of 2. When the rebound returned to the original position, and finally returned to the initial supply area, it immediately closed the long upper shadow line. At this time, it is the key position where everyone is bearish, and it is also a good position to open positions. Some funds enter the market, the short-term trend is formed, and the bearish position is confirmed.
From this we know that the first characteristic of capital flow is: it has a herd effect.
Because of the herd effect, we don't need to clearly distinguish the type of each trader, is it the central bank? bank? These are not important, we only need to judge whether most of the funds choose to enter or leave the market according to the K-line trend. (Digression: So in fact, fundamental analysis is useful, because most institutional investors choose the direction of trading based on fundamental analysis)
The second characteristic of capital flow: rapidity
Behind the transaction is ultimately operated by people, so the rapidity of funds is the embodiment of human greed. Because of the rapidity, it is easy to cause a rapid rebound or fall when the market has a large profit.
As shown in the figure above, after the long upper shadow line appears, the bears have a certain advantage, and then slowly fall in 2, which further confirms the entry of short-term bears; the last wave of 3 falls ends the bear trend. Because it has fallen out of a certain space in a short period of time, due to people's greed, some funds will choose to close their positions, resulting in a subsequent rapid rebound.
This is also why many people feel that the market has started a short trend when they see 3, and open short positions, but instead there is a rebound of the big positive line, so liquidation happens from time to time.
The third characteristic of money flow is: morale
I still remember an article in classical Chinese in junior high school, "Cao Gui's Controversy", which talked about morale: once the spirit is vigorous, then it will decline, and three times it will be exhausted. Everyone must have remembered it! Repeatedly means: the momentum is the most vigorous at the beginning, if it continues intermittently, it will often have negative results. In fact, this can be seen everywhere in transactions. The second example mentioned above also shows this feature, so you can experience it yourself.
I have always been curious why the wave theory proposes 3 waves instead of 4 waves, which probably has something to do with momentum.
The above are the three characteristics of the flow of funds that I have summarized, and these characteristics have been guiding me in trading. In fact, it is not difficult to say that trading is difficult, because you only need to discover the financial logic behind it from the K-line pattern and trend, to find out the direction of the funds of the large force, and then enter the market and wait, just be a "free-rider" trader up!
Of course, it is not easy to say, how to find out? How to verify? It's a long learning process.
So friends, come on! Properly dig out the flow of funds and be your own trading king.
Add
