The textbook tells us that the concept of trend is too simple, just like someone told you that you should go south to the South Pole. We can't really understand and grasp the trend with such a general concept. In the running process of the trend, we will encounter many obstacles, so that you can't judge whether the trend will continue, because investors ignore the feature that the trend is composed of fluctuations. The directionality of the trend often masks the disorder of fluctuations, but for investors, price fluctuations can attract his attention more. Investors will spend most of their energy on fluctuations, but fluctuations are disorderly and random. This kind of attention will only confuse your view of the market and ignore the real trend of the market. The market tends to fluctuate against the trend, which is often manifested in a daunting form. When this happens, it is difficult for you to keep your position in line with the trend and you will close your position and leave. The motto "Value power over price" should be used with caution. Under the guidance of the concept of "valuing power over price", many investors entered the market at inappropriate prices and were ruthlessly cleaned by the market. After repeated dishwashing several times, the market continues to run in your optimistic direction. At this time, you can only sigh that the market is large and unpredictable. The complex mood of seeing right and doing wrong makes it hard for you to accept, and then you hope that the next trend will come, thus giving up the opportunity of this trend from the bottom of your heart. Trends are composed of fluctuations, and accurately speaking, orderly trends are composed of disorderly fluctuations. Looking back, the trend is quite perfect. This method of re-understanding the trend will inevitably make you ignore the importance of random fluctuations that constitute the trend. However, it is this disorderly fluctuation that makes you see right and do wrong.
Paying attention to disorderly fluctuations makes investors lose money in the trend, thus making the trend unimportant in our trading!
To understand the trend, we must first know that the trend is composed of fluctuations. If you really want to follow the trend, you must filter out disorderly fluctuations, give up the theoretical profit opportunities brought by fluctuations, and regard fluctuations as worthless price movements, which requires you not to pay too much attention to market price fluctuations, so as to make yourself relatively numb, but at the same time be more stable. The fluctuation of price will make your view of the market fluctuate, and you can't grasp the main direction of the market if you pay too much attention to the fluctuation. You can look for some trading tools to grasp the main direction of the market, rather than focusing on the operation of prices to grasp the main direction of the market. Personally, I think both the moving average and the trend line have this function, and these two tools have a good tracking effect on the trend. The moving average is a curved trend line. Different markets and varieties must use different moving averages, and different market states must use different trend lines. They can filter out disorderly price fluctuations to a great extent, thus reducing our wrong transactions. It is very important that we can really grasp the market trend through trading tools instead of paying attention to price fluctuations!
Being able to withstand loneliness and endurance is also an important factor in grasping the trend. Endurance to endure loneliness and tenacity is not innate, but based on a deep understanding of the market. We already know that the trend is composed of price fluctuations, and price fluctuations will make your capital account fluctuate. Whether you can tolerate the fluctuation of funds is an important factor for you to stick to the trend. Most investors got off the trend train in advance because they couldn't stand the temptation of capital fluctuation and price fluctuation. As far as my personal experience is concerned, it is quite difficult to make a correct trend. Before doing it right, we often make mistakes, and it is very expensive to really find a big opportunity. Therefore, once you make a trend, don't come out easily. Unless your trading tool tells you it's time to leave, you will hold it forever and hold it as much as possible. Otherwise, the price you paid in the early stage will be irreparable. There are few truly valuable trading opportunities in the market, only a few times a year, or even once. Once we give up early, we will get nothing. Please note that what we are discussing today is the understanding and application of trends, not for short-term traders and band traders. This also shows that trend chasers should learn to give up many short-term and band trading opportunities, which once again requires us to be relatively numb. You must have a fairly clear goal, that is, I only pursue trend profits and give up fluctuation opportunities! This alone is enough to deter the vast majority of investors, which is why few people really grasp the trend.
It takes a lot of money to gain the trend profit, including the constant stop loss before the trend is formed and at the end of the trend, and the torture caused by the ups and downs of the market. It is difficult for investors who have not made this profit to understand. We often only see the profits that the trend brings us, but we don't see the huge price paid for obtaining this profit. We often fall into the beautiful imagination of the trend: how wonderful it would be if we entered the market when the trend formed and appeared at the end of the trend! This kind of imagination beautifies the trend, but at the same time it also leads investors to fail to understand the trend and grasp it! Without certain trading ability and understanding of the market, grasping the trend can only be a good wish. Trend market is not suitable for most investors in essence, and most investors can never get rid of the pursuit of volatility. It's like "Ye Gong Long Hao". On the surface, we all love trends, but in fact, we prefer fluctuations in our bones!
Only by giving up the preference for fluctuations can we chase the trend. You can consider whether you can do it or not, otherwise don't blindly pursue trend profit! And getting trend profit is far from as easy and beautiful as it seems. You need a strong heart and a deep understanding of the market.
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Trend line may be the simplest of all technical analysis tools, but more importantly, trend line is a very valuable analysis tool.
In my trading system, the trend line occupies the core position and is the most important measure to judge the trend and choose the trading opportunity. It can be used alone. Almost all other tools cooperate with the trend line in the auxiliary position, not the other way around.
Why do I value the meaning of the trend line so much?
First, the trend line is almost the only tool that can embody the definition of "trend" in Dow Theory.
We know that all sources of technical analysis come from Dow theory. Therefore, the definition of trend in Dow's theory has the most fundamental guiding significance.
So, what is the definition of trend?
Very simply, the high and low points of the rise are both upward trends; The high and low points of the decline are downward trends.
Pay attention to the expression "ups and downs" in the above expression, which means there must be at least two relative highs and two relative lows.
We connect two successively rising lows, and the straight line that appears is the upward trend line. Because it is a straight line, Gubi is also called a "straight trend line". On the contrary, we connect two high points that fall in turn to form a downward trend line.
Note that the trend line drawn at this time is tentative for the time being (so, I tend to call it the inclined "support line" or "pressure line" at this time, and don't regard it as a trend line for the time being), and its effectiveness needs to be verified by the fourth point. The fourth point is the second relative high point in the upward trend and the second relative low point in the downward trend. (Murphy talked about a flexible confirmation method in the technical analysis of the futures market-as long as the high point or low point reaches more than 62%, it can also be regarded as confirmation.
Now let's see if there are other tools in technical analysis that can replace the trend line to reflect the role of Dow theory in defining "trend".
1, moving average-the moving average system is a commonly used tool for judging trends. The moving average is very long, and we think the market is in a bullish trend; Short arrangement is a short trend. The moving average system adopts another calculation method, which is based on the average price in a certain period of time. Therefore, although the moving average system can indicate the direction of the trend, it cannot reflect the definition of "trend".
2. MACD-The construction principle of MACD is similar to the moving average system. So it is similar to the moving average in judging the trend. Of course, MACD has other uses, but it is not the focus of this article, so it will not be expanded.
In my opinion, the main tools for judging the trend at present seem to be trend line, moving average and MACD. Here, the only thing that can embody the definition of "trend" is the trend line This is why the trend line is irreplaceable by any technical analysis tool. Therefore, Victor said, "Trend line is the most useful tool for analyzing trends." We noticed that Victor used the word "most" instead of "one".
Why do I value the meaning of the trend line so much?
First, the trend line is almost the only tool that can embody the definition of "trend" in Dow Theory.
Second, the trend line reflects the relationship between time and price.
I used to be puzzled: why can such a simple straight line play such an important role? As far as support lines and resistance lines are concerned, shouldn't horizontal support lines and resistance lines be more important?
With the in-depth understanding of the market, especially through the study and thinking of Gann's theory, I gradually realized that time and price are the two most critical basic elements in the market (the third basic element is volume). The meaning of the trend line reflects the relationship between time and price, and can also reflect the relationship between price and kinetic energy from one side.
If we only look at the price, then the horizontal support line and the horizontal resistance line are the most important-this is why we can't always ignore the horizontal support line and the horizontal resistance line.
However, when the market started to move, the time factor began to play a role, which changed the speed of price movement. The inclination of the trend line and our constant adjustment of the trend line in the later movement all reflect the different speeds of price movement. Note: the speed of this price movement also reflects the energy of price movement in some way.
So the price will follow the direction of the trend line, and the slope of the trend line will expand. This is why the trend line can play the role of support and resistance.
Once the price begins to break the trend line, it shows that there may be problems in the price movement, at least in terms of speed and energy, the state of movement has already appeared abnormal precursors. Therefore, when the price crosses the trend line, we usually regard it as a harbinger of the trend change, because at this time, we need to be alert to whether the original motion state of the price is healthy.
So I said: the deeper you understand the trend line, the deeper you will understand the market; Conversely, the deeper you know about the market, the deeper you understand the trend line. Only by deeply understanding the meaning behind the trend line can we correctly understand and accurately use it.
Are there any other special advantages of the trend line?
There should be more. But I think that even the above two reasons are enough to make us look at the trend line differently and regard it as the most commonly used, effective and basic tool in our technical analysis arsenal.
In my personal trading practice, the reason why my trading can enter the "trend" of sustained profitability is directly related to the use of the trend line. It can be said that it is the trend line in the market, which directly supports the upward trend of my book profit. Therefore, I am very willing to explain the function of the trend line to my friends. I also hope that my friends can begin to pay attention to the function of the trend line and quickly master the skills and methods of using the trend line, so as to draw an inclined upward trend line for their accounts and form what Master Gubi said "a beautiful figure"!
I used two whole articles to illustrate the importance of the trend line. However, it is such a seemingly simple thing that it needs a hard process of study, thinking, actual combat and testing to be applied to actual transactions. Personally, I knew that there was a trend line tool from the first day of technical analysis, but I didn't understand it until two years later; Then, it took another year or so to practice and explore, and reached the level of proficiency.
Before I have confidence in using trend lines, I hope to rely on the moving average system as an alternative. I believe this may also be the idea of many traders. Because I have such practice and comparison, I can say responsibly here that the moving average system can't replace the trend line! The moving average system can be used to assist and verify the trend line, not the other way around. Regarding the correct use of EMA system, if I have time in the future, I will sort it out separately. )
Then, why didn't I dare to use the trend line?
First, I don't understand the meaning of the trend line, so I don't know enough about its value. This is the limitation of thought and cognition.
Second, I'm worried that I can't draw the trend line well, so that the overall judgment and trading behavior of market trends will not be affected? This is a lack of ability in action.
Therefore, from the beginning to accept the concept of "trend line must be used", and finally to really apply trend line to actual combat, two problems need to be solved: first, the correct concept of trend line use; The second is the correct use of the trend line. Fortunately, I found the answers to these two questions in Gubi and Victor respectively.
Below, I will further elaborate the above two issues according to my own understanding:
First, the correct use of the concept of trend line points
(A) the trend line can explain the price behavior in the market!
Interpretation is a basic function of all theories, and it is also a function of technical analysis theory. Since the price has only two directions (upward trend, downward trend and no trend), technical analysis can explain all price behaviors, because as far as the consequences are concerned, there are only two kinds of price behaviors: effective or failure. We often hear that breakthroughs are effective and ineffective (that is, false breakthroughs); Support is valid, and support is invalid; The price is blocked by the 5-day moving average, the price crosses the 5-day moving average, and so on.
Technical analysis can explain all price behaviors, which is beyond the scope of fundamental analysis and irreplaceable. When the fundamental analyst is confused about the sudden change of price, the technical analyst will only pay more attention to the price trend and still give the trading signal in time.
As an important tool in technical analysis, trend line obviously has the function of explaining market price movement. Quite simply, all price movements are above or below the trend line, and there is no third position or space.
(B) Trend line does not have the function of guiding market behavior.
Usually, all kinds of theories we know have one thing in common: we explain what we study, and the same object is to be reformed. For example: philosophy, explaining the world and transforming the world; Buddhism explains life and ends it. )
However, the technical analysis is slightly different. Its theory studies the market and explains the market, but it definitely does not guide the market! This is what we should pay enough attention to when studying the theory of technical analysis. If this concept is not fully established consciously, it can basically be said that the essentials of technical analysis have not been mastered and cannot be mastered!
So the trend line can explain the market, but it can't guide the price behavior. Although the trend line, like other technical analysis tools, has the function of self-realization, it is a simple fact that the market, not Guanyin Bodhisattva, will not listen to everyone's cry for help in the world, and he doesn't know how every trader draws the line! The market has an independent will and will act completely according to its own will. It can walk along the trend line in your hand and make you feel that your trend line is so beautiful and elegant. He can also quickly crush your trend line and make you feel that your trend line is very fragile! The market doesn't need to pay attention to how you explain him and how you understand him. The trend line you draw has no influence on the movement in the market, is not binding and has no guiding value!
So you should draw the trend line as well as possible, which may explain the market more accurately. However, although you can't draw the trend line well, it has nothing to do with the overall situation. Because your trend line, good or bad, has the same effect on the market: 0. In this sense, we know that we should allow ourselves to draw imperfect lines! Even allow yourself to draw lines with some deviations! -as long as it does not deviate from the basic principles of the trend line.
(3) The most fundamental function of the trend line is to guide your trading behavior!
This is the essential purpose of the trend line!
No matter how perfect or slightly lacking your trend line is, from the moment you start to draw a line, you should consciously make your trading plan and execute your plan according to your trend line.
You should regard the trend line as the most fundamental lifeline to protect your funds and ensure your continued profitability! So, absolutely obey the direction and signal indicated by your trend line and act quickly.
You must have this idea, otherwise, give up using the trend line! At this point, the trend line, like any other technical analysis tool, has no immunity and no priority. Since we trust technical analysis, we should act in strict accordance with the conclusion of technical analysis.
Second, the correct use of the main points of the trend line method
(A) the main points of drawing the trend line
First of all, learn to draw the trend line correctly. Obviously, a good trend line will occupy a more favorable position in judging trends and managing transactions.
The drawing method of trend line has wonderful and classic explanations in Murphy's Technical Analysis of Futures Market and Victor's Principles of Professional Speculation. When I personally draw a trend line, the main points are as follows:
1, the trend line must include all prices. That is, I take the highest price and the lowest price as the standard, not the closing price.
2. The trend line is not allowed to pass through any candle chart in the local market trend chart. That is, all price behaviors should be covered.
3. Strictly distinguish the definitions of trend line, support line and pressure line.
(2) Trend line trading points
From the trend line, there are only three kinds of price behaviors in all markets: there is no trend line; There is an obvious trend line; Need to adjust the trend line.
1, the trading point when there is no trend line.
In the market, if there is no trend line, then there is only one explanation: the market has no trend.
This situation is often the end of the old trend or the beginning of a new trend. For example, the downtrend line has been destroyed, but the new uptrend line is not yet mature. This is the bottom of the plate and the head.
Of course, there may also be a middle, the old trend line is destroyed, and there is no clear trend line before the trend has recovered. The messy level, such as aluminum recently, is the most typical example.
In this case, the most robust countermeasures are to wait, avoid, wait, or consider the trend of the market outlook with the original trend-after all, the probability of trend continuation is greater than the probability of trend reversal.
2. Key trading points when the trend line appears
Once there is a clear trend line in the market, then we have established a clear trading direction-the direction indicated by the trend line!
Remember: this is the most basic function of the trend line-analyzing, judging and describing the trend.
1 As long as this trend line is effective, we will always only trade in one direction. This is the basic requirement for trend line traders. As for how to choose the timing, we need to learn from other technical means, such as support level and resistance level, moving average, candle chart, percentage withdrawal and so on.
If we use the trend line to find trading opportunities, we are most concerned about the time when the price falls on the trend line for the third time, which often constitutes the best entry point.
3. Main trading points during trend line adjustment
When we draw a trend line, don't expect our trend line to stay young and live forever! This is impossible, much less realistic. There is hardly a trend line that can protect you all the way through the trend.
In the process of price movement, the phenomenon of acceleration will appear first. At this time, we need to adhere to the new price space on the original relatively flat trend line and redraw the relatively steep trend line to ensure that our trend line can effectively track the new price changes. Murphy said in Technical Analysis of Futures Market: Sometimes, the price changes too fast, and the trend line cannot be tracked in time. At this time, the moving average system can be used instead of the trend line. This is a very practical opinion! The current trend of natural rubber in Tokyo, Japan is a very typical example.
On the other hand, sometimes, there is a deep adjustment in price sports. Although it has broken through our original trend line, the trend has not changed. At this time, we also need to adjust.
The destruction of the old trend line may mean that the trend will reverse, but this possibility is not great unless it is verified by other technical means. We should always tend to think that this is only a change in the trend mode, not a change in the nature of the trend. Look at the market from the perspective of adjusting the trend line, and less from the perspective of trend reversal.
It should be said that when adjusting the trend line, this is the place to test the level of traders. At these times, it is difficult for us to get more information and draw more conclusions only by relying on the trend line. We need to use other technical tools to decide through mutual verification.