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Markets are comprised of two essential components: people and money. The fluctuations in asset prices are often the result of the interaction between these two factors. If the funds of the market participants are roughly equal, referred to as an average chip distribution, then the asset price fluctuations are determined by the number of buyers and sellers. However, if some participants possess a considerable amount of wealth, known as having a lot of chips in hand, then capital becomes the primary driver of asset price fluctuations. In reality, both situations can occur, requiring specific analysis for each case. In large-cap markets like foreign exchange, having a large amount of capital does not necessarily provide a significant advantage. However, for some small-cap stocks in the domestic securities market, capital is the predominant factor, referred to as "dealer stocks" in the industry.
It's important to understand that in an average distribution of chips, the number of buyers and sellers determines the direction of asset price fluctuations. Put simply, if more people buy, it causes the price to rise, and if more people sell, it causes the price to fall. However, this does not necessarily mean that most participants in such a market will make a profit. Being right about the direction of asset price movement and making a profit are two separate concepts, and the terms floating profit and closing profit should not be confused.
In 2012, I recall a senior trader in our trading room suggesting that the excess funds be allocated to him to short gold. He proposed using a "reverse trading strategy" that involves taking a short position when the market expects the market to go up. At that time, the market generally expected that the launch of QE3 by the Federal Reserve would continue to push up the price of gold. However, this trader had a different opinion and believed that shorting gold would provide greater potential returns due to the potential for a downward movement being larger than the probability of the price continuing to rise. He ultimately had a huge harvest, holding his position for a year and a half before closing it. This example highlights the importance of considering risk-reward ratio and not just probability when trading. It also draws a parallel to China's real estate market, where the probability of an increase is high but the space for growth is limited, while the probability of a decline is small but the potential for decline is significant. A Russell chicken thinker may not understand this perspective.
In a market where chip distribution is uneven and a small group of people hold the majority of chips, any analytical methods used are meaningless. This is similar to "stock manipulators" or forced liquidation in the futures market, where logic is almost non-existent. These investment opportunities are not the focus of our research. However, in a market where chip distribution is even, what factors contribute to the prices it presents? Before answering this question, I would like everyone to consider a game.
Imagine there are three beautiful ladies in front of us, and we are going to play a game. The rules of the game are as follows: there are 100 participants, and they must vote to choose the most suitable wife among the three women. If the woman you vote for receives the most votes in the end, you will receive a reward of 1 million dollars.
Here are the descriptions of the three ladies:
• A: voluptuous figure, 178cm tall, long hair, fashionable dress, enjoys shopping.
• B: 160cm tall, long hair down to her waist, wears glasses, loves reading and writing.
• C: 150cm tall, slightly chubby, enjoys/>/>/>/>/>/>/>/>