My Understanding of Dow Theory
So far, many investors, including some so-called experts, have a deep misunderstanding of Dow theory. They always hope to find a simple way to beat the market. It's like finding a cornucopia, putting a sesame seed in it, and it becomes one or two pieces of gold. In fact, this is simply impossible in the securities market. Disappointed, they began to accuse Dow theory, saying that it could not guide the medium-term market. Others say that Dow theory is not helpful for stock selection, and some even say that Dow theory is too slow to respond. In short, these allegations are varied. What can we say about this? Everything in the world is not perfect, and there can be no perfect analysis system in the securities market. If so, how can anyone lose money?
In China stock market, Dow theory cannot be used to judge the coming of bear market or the beginning of bull market, because there is no railway index in China stock market, but Dow theory is still of great significance.
The real contribution of Dow theory lies in emphasizing the overall trend of the market. From the previous research, we can know that Dow theory divides the whole bear market and bull market into three stages. Through the previous understanding of the characteristics of these stages, we can clearly understand the characteristics of different stages of the market and the psychological changes of investors in a complete cycle. The basic characteristics of each stage of the stock market in Dow theory are almost eternal in a mature stock market. For example, at the end of the bull market, junk stocks dominated, until 1999, the Internet stock frenzy of Nasdaq appeared, which once again fulfilled the prediction of Dow theory. The third stage of the bull market was dominated by junk stocks. Subsequently, in the first stage of the bear market, internet stocks plummeted, which proved that the first stage of the bear market was the decline of junk stocks. In Dow's theory, the bull market begins in the atmosphere of bear market, and the bear market begins in the voice of bullish, and so on. The characteristics of these stages have not changed from beginning to end. The alternation of bull market and bear market represents the changing process of investing in public chips. The rising height and time period of each process can be long or short, but their difference will only be degree, not fundamental. Only by understanding the changes and characteristics of the market in each period can we understand what stage the market is in and what countermeasures should be taken from these characteristics.
Looking back on Rhea's works a century ago, we can find that Rhea once classified all the price movements in the history of the Dow Jones index according to their types, amplitudes and periods. At that time, he had only 30 years' data for reference, but surprisingly, his classification results at that time were almost the same as the statistical results of a large number of data he now has. For example, the magnitude and formation time of the second round-trip trend, regardless of the data of the long-short market, are almost exactly the same as Rhea at that time, and the only difference is the amount of data. This phenomenon clearly tells us that although the world has changed with the rapid development of science and technology and investors have changed for several generations, the psychological factors that cause price fluctuations are similar and almost unchanged. No matter the market changes in the past, today or tomorrow, the essence of leading market fluctuations is eternal. All stock price fluctuations stem from the psychological changes of investors.
For example, according to the Dow theory, in the first and second stages of the bull market, blue-chip stocks mainly rose, and the third stage consisted of junk stocks. This is not unreasonable nonsense. From the perspective of investment psychology, in the first two stages of the market, investors usually have doubts about the rise of the market outlook because of their great losses and strong risk awareness in the past. Blue-chip stocks have performance support, so they are usually psychologically acceptable. Investors holding stocks are relatively stable and easier to pull up. If it's junk stock in the first and second stages, I'm afraid not many people will follow it up, and the stock price will have a slight echo. Shareholders will sell a lot because they have no confidence, and institutions often attract empty goods, which may not be able to successfully raise the stock price. Only in the later period of the bull market, with the profit of the investing public, their desire to buy and sell stocks increased with their confidence in profit, and the blue-chip stocks had already increased too much, which was no longer suitable for large-scale lifting of the ban. The market is optimistic, and investors begin to recognize junk stocks through price comparison psychology. Only in this way can the main force greatly boost junk stocks and unpopular stocks through various themes.
In the process of decline, the first and second stages of the bear market are dominated by the decline of junk stocks. This is because investors who hold such stocks usually have no confidence and are completely tempted by the subject matter. They run at the slightest sign, so junk stocks began to fall sharply at the beginning of the bear market. In the third stage of the bear market, blue-chip stocks mainly fall, because blue-chip holders usually give up in the end. In the early days of the bear market, holders of blue-chip stocks believed that their shares could stand the test of time, despite the constant negative interest rates. However, the plunge of most stocks seriously dampened investors' confidence in holding blue-chip stocks. Only at this time did the real negative interest rate realize that investors really began to despair and began to sell blue-chip stocks in large quantities. Therefore, it is necessary for us to analyze the characteristics of each market and understand the psychological changes of investors through them. Because every feature is the product of investors' psychological changes. The understanding of Dow's theory is essentially the understanding of the psychology of mass investors. As long as we understand the psychological structure and changes of investors, we can really understand the market and the reasons for the changes in the whole market. This is a compulsory course for any investor who is eager to succeed.
Looking back at the aforementioned "bull-bear cycle" and Eliot's "eight-wave cycle", and then looking back at the six different stages of his theory, it is easy to understand that although the initial technical analysis methods of the securities market are different, they actually observe the market from different angles, revealing that their essence ultimately reflects the psychological changes of investors in various stages, and the real reason that dominates the market changes is the psychological changes of investors. As long as we have a correct understanding of a certain technical analysis, we can draw inferences from other countries. Through it, you can know all the technical analysis systems and finally understand the investing public in the market. As the saying goes, all roads lead to Rome. Dow theory is no exception.
The theory of Tao certainly has its shortcomings. In practice, Dow's theory emphasizes profit from megatrends, but ignores the fluctuation of medium-term trends. Dow theory holds that investors have been holding stocks since the establishment of a bull market until the arrival of a bear market. But in fact, this practice wastes a lot of investment opportunities. From the perspective of a bull market, we learned earlier that not all stocks are rising in the whole bull market, but all stocks are falling in the bear market. In essence, in the first and second stages of the bull market, blue-chip stocks and super-large-cap stocks mainly rose. In the third stage, junk stocks, unpopular stocks and new shares mainly rose. In the original three stages of decline, the first stage and the second stage, the decline was mainly junk stocks, and the third stage was blue chips. For these reasons, we can try our best to hold the most potential blue-chip stocks and large-cap stocks in the first and second stages of the bull market. The third stage holds junk stocks, new shares and unpopular stocks. In the near future, there will be a short selling mechanism in China stock market. We can short junk stocks in the first and second stages of decline, and short blue chips in the third stage. In this way, even if the stock we choose is not the best at all stages, our performance is likely to be outstanding after a cycle, and we should not be obsessed with one stock.
Dow theory is applicable to stock price averages, such as Dow Jones Index, Shanghai Stock Exchange Index, Shenzhen Stock Exchange Index and Nikkei Stock Average. It is also applicable to various classification indicators. It can be said that the greater the market value of a market, the more listed companies there are, and its cycle follows the basic characteristics of each stage of Dow theory, because the larger the market, the less likely it is to be manipulated. Individual stocks may be seriously influenced by the manipulator, so the error rate is high, just like the water in a basin can be stirred at will, but the ebb and flow of the sea always follows the law of tides.
Dow theory enables us to look at market fluctuations from a new height, just like overlooking the whole city, so that we can see at a glance without getting lost in short-term subtle fluctuations. This is of great significance for investors to systematically understand the market.
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My understanding of wave theory
Since reading the book on wave theory, there is a famous saying: Tao theory tells people what the sea is, and wave theory guides you how to surf on the sea. After that, I think I don't even know what the sea (Dow theory) is like and what the habits of the sea (Dow theory) are like, let alone how to surf the sea. No wonder there has been no progress in learning wave theory before!
Fortunately, I studied trend tangent theory in the first half of the year. So I immediately found a book to understand the sea (Dow theory). I've been filled with Dow's theory for a few days, and I've learned to surf the sea (wave theory), and finally I have some feelings!
Basic viewpoints of Dow's theory:
1. bull market-a basic upward trend, usually (not necessarily) divided into three stages.
The first stage is to open positions (or accumulate positions). At this stage, far-sighted investors know that although the market is depressed now, the situation is about to turn around, so they buy stocks thrown by sellers who are not brave and lucky at this time, and gradually raise their bids to stimulate selling. Financial statements are still in a bad state-in fact, at this stage, the public is always in the lowest state, confused by the stock market situation and completely out of touch with it, and market activities are stagnant, but they have also begun to rebound a little.
The second stage is a steady increase, the transaction volume increases with the prosperity of the company's business, and the company's profit begins to be concerned. It is also at this stage that skilled traders often get the greatest benefits.
Finally, with the emergence of the market peak swarming by the public, the third stage comes, all the information is optimistic, the price rises alarmingly and a "brand-new page" is constantly created, and a large number of new shares are constantly listed. At this point, a friend of yours may be eager to try and come to the conclusion: "Look, I know the market is rising. Which one do you think is suitable?" -when it ignores the fact that the rally may have lasted for two years, it is long enough. Now it's time to ask what stocks to sell. In the last period of this stage, the trading volume increased sharply, and "shorting" also appeared frequently; Junk stocks also participate in trading (that is, stocks with low prices and no investment value), but more and more high-quality stocks refuse to follow up at this time.
2. Bear market-the basic downward trend, usually (not necessarily) also shows three stages:
The first stage is selling or dispersing (actually from the time when the last bull market was far away). In the later stage of this stage, visionary investors feel that the profit of trading has reached an abnormal height, so they throw out their stocks in the rising trend. Although the rebound has gradually weakened, the turnover is still high and the public is still very active. However, due to the gradual disappearance of expected profits, the market began to weaken.
The second stage is called panic stage. With fewer buyers, sellers will become more impatient, and the price decline will be accelerated in vain. When the trading volume reached the highest value, the price almost plummeted to the lowest point. The panic stage is usually far from the market situation at that time. After this stage, there may be a long disadvantage callback or finishing action, and then start the third stage.
Those investors who persist in the panic stage either sell their stocks because of lack of confidence or buy them because the current price is lower than that of previous months. Business information began to deteriorate. With the advancement of the third stage, the decline is not very fast, but it continues. This is because some investors have to raise cash for other needs and sell stocks more and more. Junk stocks may have lost the rising range of the last bull market in the first two stages, while slightly better stocks fell a little slower because their shareholders persisted until the last moment, and as a result, such stocks often became the protagonists in the last stage of the bear market. When the bad news is confirmed and it is expected that the market will continue to be bearish, this bear market will end, often before all the bad news comes out.
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My understanding of Gann's theory
Seven years ago, I was a broker in the futures market. At that time, there were only a few technical analysis methods we used, all of which were foreign, not to mention some theories about Gann. Occasionally, one day, a colleague and friend didn't know where to get a book about Gann's theory. I didn't want to mention the author of the book, so I borrowed one and copied it. & ltbr & gt
After that, I buried myself in research. For me at that time, this book was full of mystery. I take every sentence in the book as the golden rule. It's ridiculous to think about it now. Although the author of this book has spent a long time studying Gann's method, it is only a superficial understanding of Gann's analysis, and it is difficult to prove its correctness. Although I read many similar books in China later, almost all of them were copied directly from this book, and I didn't have a deeper understanding. & ltbr & gt
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Now many people are studying Gann theory and developing Gann software. I watched it too. But I don't think there is anything new. What everyone learns is confined to those books. Later, it was found that only a few sentences were correct (also Gann's original words), and the others were probably misunderstood. But there are so many stubborn people! Running in the wrong research direction, although the spirit is commendable, but running farther and farther! & ltbr & gt
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This is only the most basic understanding, and the stop loss is not 5%-8%. If so, you should always cut the meat, but if you don't always cut the wrong meat, such as normal callback, you will be washed away. & ltbr & gt
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My principle is to try to escape before the trend weakens, not stop loss. For example, it should go up by 5% in three days, but it only goes up by 1%, so you should pay attention. When to pay what price and when not to pay what price are two concepts. & ltbr & gt
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Your understanding is basically correct, but the collocation form is very important. Time is a measure of the strength of the trend, such as 6, 8, 13...25. The usage of the corner line is not what you understand. Mr. Gann didn't say the real purpose of the angle line. In fact, if you study it carefully, you will find that the 45-degree angle of the angle line should be equal to the reflection angle of the trend ... which is very important.
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The key to learning Gann's theory is to start with Gann's thought. At present, there are so many misleading things about this kind of books that even the people who wrote them don't understand them. It is even harder for people who study. Gann's theory comes from nature, so if you bring his thoughts into nature, you will find something, which is better than chewing a book that you don't know what you are writing. & ltbr & gt
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In fact, you have mastered these technologies for a long time, but you have never seen them. The fluctuation principle of stock market price is around you. & ltbr & gt
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For example, a ball will bounce when it hits the ground. The harder the ground is, the higher the ball bounces and the worse the angle swings. If the ball falls in the cotton pile, it won't bounce very high. The same is true of the rise and rebound of the stock market. By the angle and speed of reflection, I know how much support there is at the bottom. For example, it fell 2 yuan in four days. If the rebound does not exceed this 2 yuan in six to eight days, it will peak. Many wave principles are around you, not in the book. If you blindly take what is written in the book as the golden rule and don't pay attention to the fluctuation principle of things in life, then you are really miserable. This is why the so-called book experts are all losers. & ltbr & gt
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Gann's knowledge level is not much higher than mine, but his knowledge comes from nature and is a summary of the laws of natural movement and human thinking consciousness. The law of nature is the product of the law of nature and people's thinking consciousness. The fluctuation of stock market price also follows this law. The mathematical basis of this natural law is based on 1, 3,4. & ltbr & gt
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1 stands for the period of the whole and the cycle. & ltbr & gt
3, representing the level of energy change. & ltbr & gt
4. Represents the successive stages of the development of things. & ltbr & gt
On the issue of volatility:
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This is a topic that Gann researchers have been arguing for a long time and have been looking for. What is the volatility? Some domestic experts and friends I know have their own opinions, but no one can really understand them yet. & ltbr & gt
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My understanding is also a personal opinion, and the following contents are for reference. & ltbr & gt
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In fact, the laws of motion in our nature are all relative, and they are all produced under certain conditions. Without the conditions for its existence, this law will disappear. & ltbr & gt
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I found the following points in my research (completely putting aside all understanding in books):
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1, with fluctuation.
The movement of the stock market fluctuates, but these fluctuations appear in series, from weak to strong. & ltbr & gt
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2. There is a wave structure.
Fluctuation structure is a mathematical model of fluctuation transmission in stock market. & ltbr & gt
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3. The strength of fluctuation directly affects the strength of the trend. & ltbr & gt
The volatility of the same stock is different in different trends. If the volatility is the same, then every trend is carved out of a mold. The strength of fluctuation determines the strength of the trend, and also determines the running law of the trend. For example, the fluctuation of 5. 19 market is different from the usual rising market. & ltbr & gt
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4. As long as there is fluctuation, there is fluctuation. & ltbr & gt
Volatility is the inherent property of price fluctuation, but it is not the inherent property of stock. It only represents that a certain fluctuation period works along a certain fluctuation structure. & ltbr & gt
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In addition, it should be noted that there are some specific fluctuation laws in different fluctuation trends, but this fluctuation law disappears with the death of the trend. Don't think that just because you find a pattern in a trend, you can move it anywhere, then you are wrong. Different reasons lead to different results and different laws. Sometimes, although similar in form, the causes are different. Only by understanding the causes of fluctuations can we know the results of fluctuations. The so-called historical reappearance is not a metaphysical reappearance, but a reappearance of reasons. & ltbr & gt
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In the wheel-in-wheel, the resonance between time and price is only part of revealing the market fluctuation. You also need 1/3. For example, if a fist hits a strong person, the effect is different from that of hitting a weak person. The research on the angle and form of trend fluctuation is the rest 1/3. You can refer to Gann angle line, but it is not used to judge the high and low points, but the relationship between the strong and weak angles of the trend and time. Its usage has been since the Enlightenment, so that's it. & ltbr & gt
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Reference: Time+Price in Wheels
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Angle line angle+time
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The time periods of 4 and 6 are the essence of Gann's time. & ltbr & gt
But if the period reaches the square of 6 or 7, then the cycle of a basic period is over. The figures behind are not suitable and extremely unstable. We should find a new starting point, or use a higher periodic chart, such as weekly line, monthly line and annual line. & ltbr & gt
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The difference between investment and speculation is that
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The former: fully analyze and understand market fluctuations. & ltbr & gt
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1, and can objectively estimate your odds and losses (that is, how much you can win and lose). & ltbr & gt
2, can predict the potential risks in the market, do a good job of preventive strategies, that is, how to escape in bad situations, the key is what is bad, it depends on your basic skills. & ltbr & gt
3. Make a correct judgment on the price and time of buying and selling. & ltbr & gt
The latter: entering the market without knowing the market, following the trend, listening to the news, or just relying on feelings, is no different from playing poker. Whether it is good or bad, there is no need to comment. & ltbr & gt
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The difference between investment and speculation is that any market investment and speculation coexist here, and the key is the role of intervention. & ltbr & gt
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I think you should consider the remaining problems. & ltbr & gt
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If it goes up, it won't go up, and if it doesn't stand up, it will be abolished. & ltbr & gt
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The key lies in what form, what price and when to be bullish. & ltbr & gt
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Be strong if you don't fall, and be strong if you don't fall. & ltbr & gt
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The key lies in what form, what price, and when to be bearish. & ltbr & gt
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When to pay what price, and when not to pay what price. & ltbr & gt
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This is an important basis for us to judge whether the market will turn. & ltbr & gt
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In other words, when and in what form should the price be reached? If it is achieved, the market will continue its trend. If not, the market will turn at this time. & ltbr & gt
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The key is how long to measure. In fact, this problem has been compared in previous posts. Some things are your own only when you experience them, so you can use them flexibly. & ltbr & gt
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Reasonable and unreasonable
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It is technical analysis and anti-technical analysis. In fact, learning technical analysis can only break even. But once you understand the meaning of anti-technical analysis, you really make a profit. & ltbr & gt
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Because what you see with technical analysis is what everyone sees. Then what you see with anti-technical analysis, no one can see it. & ltbr & gt
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The so-called anti-technical analysis is to find abnormal stocks according to the theory of technical analysis. Because many exotic stocks often violate all the principles of technical points when they are produced, otherwise the bookmakers will make money. & ltbr & gt
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You see, the dome is broken, which is a precursor to the decline of the level, but it must be pulled up quickly and never come back. Hey, worst of all, you just lost your job. & ltbr & gt
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Never confirm the market turn until time is out of balance. I think everyone has this sentence in mind. Indeed, it is the most quintessential sentence in Gann's theory, and it is also an important standard to study Gann's cycle and the relationship between Gann's form, price, time and potential. & ltbr & gt
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Time is an important measure to measure the development of things. For example, a person's life includes many stages, from childhood to youth, middle age and old age. There is a time division between each stage, which we temporarily call the critical point. When time does not exceed this critical point, you will not mistake young people for young people. Once the time exceeds this critical point, the stage will turn, and so will the periodic operation of nature. This is a time-critical issue of the periodic law and the study of the periodic operation law of the stock market. But the point is, in the stock market, there are many cyclical laws. Can you find this critical time to restrict the stock market? For example, there are 24 solar terms in a year, and each solar term is a key time period, but each solar term has different functions. Only the beginning of spring marks the beginning of spring. & ltbr & gt
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In addition, the problem of time balance is an important breakthrough to solve the relationship between form, price, time and potential. People often say that the long-term market will rise or fall, that is, when the trend is maintained in a certain state, the state will exceed the maximum tolerance limit until the maintenance time, that is, the trend will turn. But whether it is upward or downward, it is related to the fluctuation form and angle of the trend, which is formed by the investor's mentality. For example, every time you go up, the speed is fast and the angle is steep. When falling back, the speed is very slow and the angle is very slow. It shows that the investment mentality is good, the purchasing power is sufficient and the efforts are weak. After going back and forth several times, people's investment psychology is getting stronger and stronger. Once this psychological maintenance time exceeds the equilibrium point, the trend will break out. On the other hand, if the rising speed slows down and the falling speed becomes faster, it shows that investors' investment psychology begins to get tired and lose confidence in investment. If this is repeated several times, the trend will turn once the psychological maintenance time exceeds the equilibrium point. If the rise and fall are equally fast, it shows that the investment psychology is unstable, but once the situation develops to one of the above two situations, the trend has already begun to brew, and the unilateral market will not be displayed until the time breaks through the balance. The so-called time out of balance means that the maintenance time of investment psychology exceeds the maximum time tolerance of psychology. For example, some people's stocks are stuck, which is ok at first, but over time, their hearts begin to be impetuous. They watch other stocks go up every day, while their own stocks are falling. One day, they will be fed up and sell their shares for shares. This is to endure that time goes beyond balance and the trend turns. Holding shares is like this, not because of losing money, but because * * can't stand it. On the other hand, if you think about it, you will have a new understanding of the whole morphological analysis, a deeper understanding of technical analysis and a better understanding of the nature of fluctuations, so that you can truly understand the market. That is, Gann said, different reasons lead to different results. This is also the essence of technical analysis, knowing the law, understanding the law, studying how the law came into being, and finally applying the law. & ltbr & gt
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Finally, I quote Gann, never confirm the market turn until time exceeds equilibrium. & ltbr & gt