The theoretical basis of technical analysis is based on three reasonable assumptions: market behavior is inclusive and digests everything; The price evolves in a trend way; History will repeat itself.
Three basic assumptions of technical analysis
(1) Market behaviors are inclusive and digest everything.
"Market behavior is inclusive and everything is digested" constitutes the basis of technical analysis. Unless you have fully understood and accepted this premise, it is meaningless to learn technical analysis. Technical analysts believe that any factor that can affect the futures price of a commodity-fundamental, political, psychological or any other aspect-is actually reflected in its price. Therefore, what we must do is to study the price changes. This sentence seems too arbitrary at first glance, but it does take time to deliberate. The essence of this premise is that price changes must reflect the relationship between supply and demand, and if supply exceeds demand, prices will inevitably rise; If the supply exceeds the demand, the price will inevitably fall. The law of supply and demand is the starting point of all economic forecasting methods. Turn it upside down, then, as long as the price rises, no matter what the specific reasons are, the demand will definitely exceed the supply, which is optimistic from the economic basis; If the price falls, it will definitely be bearish on the economic basis. In the final analysis, technical analysts only study fundamentals indirectly through price changes. Most technical experts will also agree that it is the relationship between supply and demand of a commodity, that is, the fundamentals determine whether the commodity is bullish or bearish. The chart itself can not lead to the ups and downs of the market, but simply shows the optimistic or pessimistic mentality popular in the market.
Charts usually ignore the causes of price fluctuations. In the early days of price trends or when the market is at a critical turning point, no one often knows exactly why the market behaves so strangely. It is at this critical moment that technical analysts can often find their own way and hit the nail on the head. Therefore, with your more and more rich market experience, the more you encounter the above situation, the more you can't resist the saying that "market behavior is inclusive and digests everything".
Naturally, since all the factors that affect the market price will eventually be reflected through the market price, it is enough to study the price. In fact, chart analysts only let the market reveal its most likely trend by studying price charts and a large number of auxiliary technical indicators, instead of analysts "conquering" the market with their own shrewdness. All technical tools discussed in the future are only auxiliary means of market analysis. Technical experts certainly know that there must be reasons for market fluctuations, but they think that these factors have nothing to do with analysis and prediction.
(2) The price evolves in a trend way.
The concept of "trend" is the core of technical analysis. The whole significance of studying price chart is to reveal its trend in time and accurately at the initial stage of a trend development, so as to achieve the purpose of trading along the trend. In fact, technical analysis is essentially following the trend, that is, judging and following the established trend.
It can be naturally inferred from "the price evolves in a trend way" that for a given trend, the next step is often to continue to evolve in the direction of the existing trend, and the possibility of turning around and reversing is much less. This is of course the application of Newton's law of inertia. In other words: the current trend will continue until it turns around and reverses. Although this sentence is almost repeated in the same language, what I want to emphasize here is: unswervingly follow an established trend until there are signs to the contrary.
History will repeat itself.
Technical analysis and market behavior are inextricably linked with human psychology. For example, the price pattern is expressed by some specific price charts, which show people's optimism or pessimism about a certain market. In fact, these figures have been widely known and classified in the past few hundred years. Since they have been effective in the past, we might as well think that they will be equally effective in the future, because they are based on human psychology, and human psychology has always been "a leopard cannot change its spots". "History will repeat itself" means that the key to the future is hidden in history, or that the future is a copy of the past.
Under these three assumptions, technical analysis has its own theoretical basis. The first article affirms that studying market behavior is to comprehensively consider all factors that affect prices, and the second and third articles enable us to apply the discovered laws to the actual operation of the futures market.
(2) Elements of technical analysis: price and quantity.
The main basic indexes of technical analysis of futures prices are opening price, closing price, highest price, lowest price, trading volume and positions.
(1) Opening price, that is, the price generated in call auction five minutes before the opening.
2 closing price, the final transaction price of the day.
(3) the highest price, the highest transaction price of the day.
(4) Lowest price, the lowest transaction price of the day.
⑤ Volume refers to the number of contracts traded by a commodity futures in an exchange within a certain trading time. In the domestic futures market, the sum of trading volume is used to calculate trading volume.
⑥ Open position refers to the quantity of a commodity futures contract that has not been hedged and delivered in kind after being bought or sold, also known as open position or short position. Buyers and sellers of open contracts are equal, and open positions are only the sum of buyers and sellers. If both buyers and sellers are new positions, 2 contracts will be added; If one party opens the position and the other party closes the position, the position remains unchanged; If the buyers and sellers close their positions, the positions will be reduced by 2 contracts. When the next opening quantity is equal to the closing quantity, the positions held will remain unchanged.
Since the open contract refers to the number of contracts that have not been hedged and settled during the period from the beginning of the transaction to the end of the open contract, the more open contracts, the greater the sum of closed contracts and physical delivery before the contract expires, and the greater the transaction volume. Therefore, the analysis of the change of positions can infer the flow of funds in the futures market. The increase in positions indicates that funds flow into the futures market; On the contrary, it means that funds are flowing out of the futures market.
(3) the relationship between volume, position and price
Changes in trading volume and positions will affect futures prices, and changes in futures prices will also cause changes in trading volume and positions. Therefore, analyzing the changes of the three is conducive to correctly predicting the trend of futures prices.
(1) The increase in trading volume and positions and the rise in prices indicate that new buyers are buying in large quantities, and prices may continue to rise in the near future.
(2) The volume of transactions and positions decreased, and the price rose, indicating that short positions made up a large number of positions and closed positions, and the price rose in the short term, but it may fall back soon.
(3) With the increase of trading volume, the price rises, but the position decreases, indicating that both short sellers and short sellers are closing their positions in large quantities, and the price will fall immediately.
(4) The increase in trading volume and positions and the decrease in price indicate that short sellers sell contracts in large quantities, and the price may fall in the short term, but if they sell too much, the price may rise.
⑤ The volume of transactions and positions decreased, and prices fell, indicating that a large number of short sellers are eager to sell their positions, and prices will continue to fall in the short term.
⑥ The increase of trading volume, the decrease of positions and the decrease of prices indicate that when prices fall due to short sellers' selling positions, short sellers may make profits by covering positions and closing positions one after another, and prices may turn to rebound.
As can be seen from the above analysis, under normal circumstances, if the volume and position are in the same direction as the price, the price trend can last for a period of time; If the two are opposite to the price, the price trend may turn. Of course, this needs to be further analyzed in combination with different price patterns.
(3) the relationship between volume, position and price
Changes in trading volume and positions will affect futures prices, and changes in futures prices will also cause changes in trading volume and positions. Therefore, analyzing the changes of the three is conducive to correctly predicting the trend of futures prices.
(1) The increase in trading volume and positions and the rise in prices indicate that new buyers are buying in large quantities, and prices may continue to rise in the near future.
(2) The volume of transactions and positions decreased, and the price rose, indicating that short positions made up a large number of positions and closed positions, and the price rose in the short term, but it may fall back soon.
(3) With the increase of trading volume, the price rises, but the position decreases, indicating that both short sellers and short sellers are closing their positions in large quantities, and the price will fall immediately.
(4) The increase in trading volume and positions and the decrease in price indicate that short sellers sell contracts in large quantities, and the price may fall in the short term, but if they sell too much, the price may rise.
⑤ The volume of transactions and positions decreased, and prices fell, indicating that a large number of short sellers are eager to sell their positions, and prices will continue to fall in the short term.
⑥ The increase of trading volume, the decrease of positions and the decrease of prices indicate that when prices fall due to short sellers' selling positions, short sellers may make profits by covering positions and closing positions one after another, and prices may turn to rebound.
As can be seen from the above analysis, under normal circumstances, if the volume and position are in the same direction as the price, the price trend can last for a period of time; If the two are opposite to the price, the price trend may turn. Of course, this needs to be further analyzed in combination with different price patterns.
(4) Application of technical analysis methods
According to the historical data of price and quantity, statistics, mathematical calculation and drawing charts are the main means of technical analysis. In this sense, there are many technical analysis methods. No matter how the technical analysis method comes into being, people are most concerned about its practicability, because our purpose is to use it to predict the future price trend and thus serve the investment decision.
As an investment analysis tool, technical analysis should pay attention to the following issues in its application:
① Technical analysis should be combined with fundamental analysis for domestic futures market. The success rate of technical analysis and prediction is high. However, while applying technical analysis, we must pay attention to combining fundamental analysis. For commodity futures, the fundamental factor that restricts the futures price is the relationship between supply and demand of commodities, and the fundamental analysis begins with the analysis of supply and demand. Therefore, technical analysis should be combined with fundamental analysis.
② Pay attention to the comprehensive judgment of various technical analysis methods to avoid one-sided use of one technical analysis.
Investors should fully consider the predictions of various technical analysis methods for the future, and synthesize the results obtained by these methods to finally get a reasonable description of the strength comparison between the long and short sides. Practice has proved that using a technical analysis method alone has considerable limitations and blindness. If the same conclusion is reached after applying various technical analysis methods, the probability of making mistakes based on this conclusion is very small, while the probability of making mistakes based on only one method is very high. In order to reduce your own mistakes, you should master as many technical analysis methods as possible.
③ The conclusions drawn by predecessors and others should be verified by their own practice before they can be used with confidence.
Because the futures market can bring huge benefits to people, people who have studied futures for hundreds of years have emerged one after another, with different analytical methods and different styles of using the same analytical method. The conclusions drawn by predecessors and others were obtained under some special conditions and circumstances. With the change of market environment, the successful methods of predecessors and others may be ineffective when applied to themselves.