There should be no objection to my saying that one of the things that traders are doing all the time is identifying longs and shorts. We are bullish and bearish, what are we looking at? Whether you read the news or read transaction information (price, trading volume, positions, etc.), these data reflect the mainstream expectations of the market, or sentiment. This emotion is divided into two directions, one is more and the other is empty.
The market rarely reaches a complete consensus. In most cases, the phased long and short are interchangeable, and they are relatively evenly matched. In most cases, the market is volatile rather than trendy. The same is true for any variety, including economic data. In most cases, it is relatively stable, with mutual conversion between long and short, and rarely produces continuous trend changes in a certain direction.
In this case, we will find that in 70% of the cases, the price data of most varieties is volatile, and only in 30% of the cases, there will be a trending market. The so-called trend is generally when a consensus is formed, but this situation is relatively rare.
Therefore, both bulls and bears in the market have their own logic.
Traders should not have any opinions themselves, but analyze the opinions of both sides of the market. To gauge which of the bulls and bears is more tenable, and which one is likely to be confirmed or disproved, you can use their views.
The logic of judging which side is long and short is untenable, and it must be reasoned from the perspective of system framework and variety variables. But the opponent's expectations are not necessarily completely wrong. This is what I just said. The ideas of both long and short sides are not necessarily right or wrong, because the facts are based on the future, and the future is changing. Yes, and at the same time, it will be confirmed and disproved by the data at that time in the future.
What is the most common situation? It means that the matching cycle is different. What does that mean? For example, bulls think the economy is fine, while bears think the economy is broken. What is the most common situation in reality? In the long run, the economy is fine, but in the short term there are indeed blows, so the difference between long and short is formed.
That is to say, the time period for bulls to look at is longer, and the period for bears to look at is shorter, so this kind of divergence has arisen. After clarifying this point, you will understand that there is a high probability that the market will form a downshoot first, and then continue to repair the upstroke. When you understand the logic of the long and short sides, you can reason about the mid-line and short-term situations.
Therefore, it is necessary to distinguish under what circumstances, which data and which events will confirm and falsify the logic of both long and short sides. When the time for confirmation or falsification comes, the party that is falsified will change direction.
For example, at this point, if the short position is falsified, he will turn around and close the short position. In fact, he will become a passive long position. At this time, the direction of the long position will strengthen, the long position will turn around, and the market will form. Consensus, the price will change direction. The degree of persistence after the transformation is based on the nature of the event, the length of the falsified expectation, and the degree to which the falsified expectation was previously accepted. These three points determine how long the bulls last after the bears are falsified, including how big the range is.
In the figure below, the red line represents the price of the asset. It has a oscillating trend. What does this trend actually mean? The blue line above represents the logic of the bears, because at this point the bulls will stop following, and the bears will come down. The green line below, which is the connection of the low points, represents the logic of the bulls. Once here, the shorts will not be sold, and the bulls will start to enter the market. But as I said before, it will not last, and this expectation will definitely be confirmed or falsified at some point.
As time goes by, for example, after passing the first four points and reaching the fifth point, when the market goes up again and reaches a simple critical point of confirmation and falsification, there are two situations here. Let me talk about the first case first, that one of the long or short sides has been falsified. Assuming that the short position is falsified, the short position will become empty, and the short position will become long when the short position is closed. After that, the long position will strengthen, and the consensus of the long position will be formed, and it will definitely break through upwards. This means that expected changes, confirmation and falsification are reflected in the price. Not to mention the other direction. If the short position is confirmed, the long position will be closed, and the short position will be broken down.
Another situation is that when this time point is reached, instead of simply confirming or falsifying previous events or data, a new logical variable will be generated.
New logical variables come from several aspects, such as the generation of a new data, a new policy or a new event, a new logical variable will be formed, and the new logical variable will generate new long and empty increments.
If the line in the figure is the price curve of crude oil, when it reaches this position, if there is a geopolitical crisis in the Middle East and the supply of crude oil is tight, this situation will cause the price of crude oil to rise at least in the short term , It is to trigger the liquidation of the short position, and it will break through upwards.
In two cases, the critical value will be reached. The first one is that the time for the confirmation or falsification of everyone's long and short expectations in the past has arrived, and the data has come out.
The second is that new events, policies or data are generated and new logic is injected.
Didn't figure it out? It doesn't matter.
Let’s look at the example again. In the picture below, in the middle, the first picture is Amazon’s stock price, and the second picture is the new data of the US epidemic.
It can be seen that with the intensification of the epidemic, the demand for e-commerce and online shopping has increased, which is why Amazon has reached a new high. We cannot simply say that it is completely printed by the Federal Reserve, it must be supported by fundamentals.
As the epidemic reached its peak for the first time, Amazon’s stock price entered a stage of shocks. When the second epidemic emerged, it promoted e-commerce and online shopping again.
So we need to understand what its long-short logic is. The long-short logic here is actually rational. Amazon is not rising randomly, that is, the bulls reasoned about the impact of the epidemic on the fundamentals of the Amazon company, and then made such an allocation and investment arrangement, but the bears did not realize this, and he might think it was printing money Too much printing, this is an irrational exuberance, which is not the case.
Therefore, it can be seen that the new crown epidemic has actually accelerated the growth of e-commerce in the United States, and it has a continuous fundamental impact. This means that we must understand the fundamental logic and long-short logic through the disk and data.
The picture on the left is the same. The first picture is the data of new cases, the second picture is the revenue of Burger King, and the third picture is the revenue of Disney, which we are more familiar with.
It can be seen that the first outbreak of the epidemic will definitely hit the catering industry and the tourism industry, because people can no longer go to restaurants to eat, and they can no longer take their children to Disneyland. This is definitely a negative for their fundamentals Impact. As the first epidemic peaks, the expectations of these two companies will improve. After the first epidemic peaks, with the unblocking, the probability and frequency of people going to restaurants to take meals will at least increase. Correspondingly, catering Business revenue will increase.
But why can't Disney's slope rise? Because the city is still closed due to the epidemic, the recovery of Disney is slower than that of the catering industry such as Burger King. Because after the unblocking, everyone can go to restaurants to eat and pack some food, but Disneyland is still closed. With the outbreak of the second epidemic, the opening date of Disneyland was pushed back again, the slope disappeared, and it began to go horizontal again, and even produced a downward trend.
The three types of assets in this example, the first type of asset is Amazon, the second type of asset is Burger King, and the third type of asset is Disney, which are affected by the new crown epidemic from different angles. The impact of the epidemic on Amazon is positive, but it is negative on Burger King and Disney.
What you need to know is that everything has positive or negative aspects, and there is nothing that cannot be used and can be used unless you do not understand it objectively.
When you understand it objectively, you will understand that everything has positives and negatives, and you can see which types of positives occur and which types of negatives occur, and form corresponding strategies to configure them.
By understanding the market, you can understand what the bulls and bears think, when a critical value will be reached, and when the bulls and bears will have a change.
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