The following is an anecdote about how market psychology is in the right market direction. For example, this is transcribed from the book The New Gates. The story took place on the Chicago Board of Trade.
Soybean prices have risen sharply, and there is a drought in the main soybean producing areas of Illinois. Unless the disaster can be alleviated in a short time, there will be a serious shortage of soybeans ... suddenly, a few drops of water flowed out of the window glass. "Look!" Someone shouted, "It's raining!" Suddenly, more than 500 pairs of eyes (referring to more than 500 floor traders-editor's note) uniformly turned to the big window ... The rain fell, getting bigger and bigger, and finally turned into a downpour. Downtown Chicago is shrouded in rain. Selling, buying, buying, selling is called buying and selling. As the traders flew out like fried beans on their lips, they gathered in a loud noise and drowned out the thunderous thunder outside. At first, the price of soybean fell slowly, but later it seemed to be infected with some tropical infectious disease, and the soybean market collapsed across the board. It is raining cats and dogs in Chicago. But nobody grows soybeans in Chicago. In the center of the soybean producing area 300 miles from Chicago, there is not a cloud in the sky, the sun is shining and the drought is still there. However, although there was not a drop of rain in the soybean field, it fell on the heads of businessmen. These raindrops have the most say. For the market, whatever happens is meaningless unless the market really reacts to it. The game of the market is played by traders with their minds and emotions.
In order to understand the importance of crowd psychology, you might as well think about it. What happens when we exchange a piece of paper called "money" for things like food or clothes? This paper itself has no intrinsic value. Why can I change it to something I can see and touch? This is precisely because we have the same psychology about this paper. Because everyone believes that this paper will be accepted by others, this paper really has this magical power. Once this mentality is broken, people no longer trust money. In this case, it is worthless.
Second, technical analysis method is an important part of trading mode, which has clear discipline constraints. All traders can't escape emotional problems, which is our nature, and strict discipline helps to alleviate its negative effects. From the moment you put your money into the market, emotionalism immediately occupied the driver's throne, while rationalism and objectivism were avoided and became passengers on the bus. If you have any questions about this, please make paper transactions first, and then actually enter the market with your own money. I can immediately experience the profound influence of negative factors such as tension, expectation and anxiety. In fact, they distort your trading methods and break your balanced attitude towards the market, and the importance of this influence is usually proportional to the amount of money you invest. Technical analysis method can send the principle of objectivity back to the driver's seat. Technical analysis provides a set of market operation mechanism, through which we can choose entry point and exit point, determine risk/return ratio and design stop loss level. By taking the above measures, we can establish a set of effective risk management and fund management norms.
As mentioned above, technical analysis methods can help us face the market objectively. Unfortunately, people often look at the market with wishful color-changing glasses, but they can't see the true face of the market, which is determined by our human nature. Isn't the following tragedy happening around us again and again? At first, a businessman bought it. Then, the market began to fall. Will he immediately "break the arm of a strong man" and stop the market? Usually not. Although there has never been a position of subjective imagination in the logic of the market, traders spare no effort to collect all favorable fundamental information and piece together a bullish picture to cheer themselves up, hoping that the market will return to its own direction. At the same time, the market price continues to fall. Perhaps the market is trying to send him any signal. Yes, the market can really communicate with us. Through technical analysis, we can hear and see such market language and expression. Now, the market is transmitting its own information to the trader, but he turns a blind eye and turns a deaf ear.
If a trader can step back, jump out of his predicament and study the price changes calmly and objectively, then he may be able to find an accurate and reliable market feeling. Imagine if everyone thinks that a news is good for the market, but after the news is released, the market well has not risen or even fallen. So, what does this mean? This shows that the market is revealing the current market psychological state very strongly through such price changes, and provides a lot of information on how we should operate.
I remember that Jesse Livermore, a famous trader, once expressed the view that only by leaving a certain distance from the research object can we better observe its whole picture. Technical analysis is to let us take a step back and observe the market, so as to have an unusual and perhaps more appropriate impression on the market.
First, in the basic analysis, although it may include the evaluation of the relationship between market supply and demand, the calculation of the ratio of stock price to earnings per share, and the study of various other economic indicators, it does not take into account the influencing factors of market psychology. The problem is that sometimes the market is largely dominated by market sentiment. The fact that an ounce of emotion is worth a pound. As John Maynard Keynes pointed out, "In an irrational world, nothing is more disastrous than adopting a rational investment strategy". In view of various "irrational" (market sentiment) factors in the market, technical analysis methods provide us with a unique measurement mechanism.
The following is an anecdote about how market psychology is in the right market direction. For example, this is transcribed from the book The New Gates. The story took place on the Chicago Board of Trade.
Soybean prices have risen sharply, and there is a drought in the main soybean producing areas of Illinois. Unless the disaster can be alleviated in a short time, there will be a serious shortage of soybeans ... suddenly, a few drops of water flowed out of the window glass. "Look!" Someone shouted, "It's raining!" Suddenly, more than 500 pairs of eyes (referring to more than 500 floor traders-editor's note) uniformly turned to the big window ... The rain fell, getting bigger and bigger, and finally turned into a downpour. Downtown Chicago is shrouded in rain. Selling, buying, buying, selling is called buying and selling. As the traders flew out like fried beans on their lips, they gathered in a loud noise and drowned out the thunderous thunder outside. At first, the price of soybean fell slowly, but later it seemed to be infected with some tropical infectious disease, and the soybean market collapsed across the board. It is raining cats and dogs in Chicago. But nobody grows soybeans in Chicago. In the center of the soybean producing area 300 miles from Chicago, there is not a cloud in the sky, the sun is shining and the drought is still there. However, although there was not a drop of rain in the soybean field, it fell on the heads of businessmen. These raindrops have the most say. For the market, whatever happens is meaningless unless the market really reacts to it. The game of the market is played by traders with their minds and emotions.
In order to understand the importance of crowd psychology, you might as well think about it. What happens when we exchange a piece of paper called "money" for things like food or clothes? This paper itself has no intrinsic value. Why can I change it to something I can see and touch? This is precisely because we have the same psychology about this paper. Because everyone believes that this paper will be accepted by others, this paper really has this magical power. Once this mentality is broken, people no longer trust money. In this case, it is worthless.
Second, technical analysis method is an important part of trading mode, which has clear discipline constraints. All traders can't escape emotional problems, which is our nature, and strict discipline helps to alleviate its negative effects. From the moment you put your money into the market, emotionalism immediately occupied the driver's throne, while rationalism and objectivism were avoided and became passengers on the bus. If you have any questions about this, please make paper transactions first, and then actually enter the market with your own money. I can immediately experience the profound influence of negative factors such as tension, expectation and anxiety. In fact, they distort your trading methods and break your balanced attitude towards the market, and the importance of this influence is usually proportional to the amount of money you invest. Technical analysis method can send the principle of objectivity back to the driver's seat. Technical analysis provides a set of market operation mechanism, through which we can choose entry point and exit point, determine risk/return ratio and design stop loss level. By taking the above measures, we can establish a set of effective risk management and fund management norms.
As mentioned above, technical analysis methods can help us face the market objectively. Unfortunately, people often look at the market with wishful color-changing glasses, but they can't see the true face of the market, which is determined by our human nature. Isn't the following tragedy happening around us again and again? At first, a businessman bought it. Then, the market began to fall. Will he immediately "break the arm of a strong man" and stop the market? Usually not. Although there has never been a position of subjective imagination in the logic of the market, traders spare no effort to collect all favorable fundamental information and piece together a bullish picture to cheer themselves up, hoping that the market will return to its own direction. At the same time, the market price continues to fall. Perhaps the market is trying to send him any signal. Yes, the market can really communicate with us. Through technical analysis, we can hear and see such market language and expression. Now, the market is transmitting its own information to the trader, but he turns a blind eye and turns a deaf ear.
If a trader can step back, jump out of his predicament and study the price changes calmly and objectively, then he may be able to find an accurate and reliable market feeling. Imagine if everyone thinks that a news is good for the market, but after the news is released, the market well has not risen or even fallen. So, what does this mean? This shows that the market is revealing the current market psychological state very strongly through such price changes, and provides a lot of information on how we should operate.
I remember that Jesse Livermore, a famous trader, once expressed the view that only by leaving a certain distance from the research object can we better observe its whole picture. Technical analysis is to let us take a step back and observe the market, so as to have an unusual and perhaps more appropriate impression on the market.