The core of futures trading is probabilistic thinking. Simply put, it is to actively participate in high probability events and strive to prevent small probability events. When any trader opens a position, he thinks that his opening direction will be a high probability event of market development. Traders who lack probabilistic thinking have two typical manifestations, namely, heavy positions and no stop loss, because they are weak in preventing small probability events. Therefore, no matter how much money a trader has made in the futures market before, as long as he lacks this probabilistic thinking, a black swan event can get him out.
Now that we know that we always keep probabilistic thinking in trading, the next question is how to find high probability events and how to prevent low probability events. When looking for high probability events, some traders use technical analysis, some traders use fundamental analysis, and some traders use fundamental and technical vibration methods. For a long time, the fundamental school and the technical school are often incompatible and attack each other. In fact, there is no difference between good and bad methods, and the judgment result is not 100% accurate, just a probability. When preventing small probability events, most traders have the same idea, that is, fund management. However, self-management is more important than fund management, because most subjective traders have poor consistency.
Taking part in high probability events is actually divided into two processes. One is to find out what a high probability event is, and the other is when to participate in it. In essence, the former tests traders' commodity selection ability, while the latter tests traders' timing ability. As we all know, commodities have the property of rising and falling together. In this case, why do we sometimes choose to do more iron ore than rebar when it rises? This is because, according to fundamental analysis, we believe that the rising space of iron ore is greater than that of rebar. Since we judge that commodities will rise in the later period according to fundamental analysis, why not choose to enter the market? This is because the role of fundamental analysis lies in the choice of varieties, and the choice of admission opportunity requires technical aspects to give us obvious admission signals.
Many traders confuse the role of fundamental analysis and technical analysis, so the operation is confusing. In fact, the main function of fundamental analysis is variety selection and direction judgment, while the function of technical analysis is mainly the choice of entry and exit opportunity. Many technical analysts do not recognize fundamental analysts. Some of them think that fundamental analysis is an afterthought, while others think that it is impossible for retail investors to understand fundamentals. In fact, fundamental analysis is to judge the market trend through deduction, while technical analysis is to judge the market trend through induction. The former is based on strict logical reasoning, while the latter is based on the assumption that history will repeat itself. However, trading is not a science, so fundamental analysis is not always effective. At the same time, history will not simply repeat itself, so technical analysis is not always effective. Therefore, the judgment result of the two analysis methods is only a probability.
Smart traders always keep probabilistic thinking, they find high probability events through fundamental analysis and participate in high probability events by using obvious signals given by technical analysis; At the same time, in order to prevent small probability events, they know how to manage funds well. In order to show respect for probabilistic thinking, when they find that they think it is a high probability event, they are not in a hurry to enter the market, but wait patiently for technical analysis to give them a strong entry signal.