Presumably foreign exchange friends know, foreign exchange trading theory has what!
The theory of foreign exchange trading is of great significance for investors to establish their own investment concepts and strategies. So what classical theories of foreign exchange trading are worth us to learn and understand?
The Butterfly effect In the 1970s, an American meteorologist named Lorenz explained the theory of the air system by saying that the occasional vibration of a butterfly’s wing in the Amazon rainforest might cause a tornado in Texas two weeks later.
The butterfly effect is when a very small change in initial conditions is amplified to make a huge difference in its future state.
Some small things can be confused, and some small things, if magnified by the system, are very important for an organization or a country, should not be confused.
How do butterflies whip up their tiny wings to cause a storm?
In forex trading, a small event can trigger a big storm.
Financial markets tend to follow the pattern that a small event can lead to a big financial storm, and the foreign exchange market is no exception.
02: Frog phenomenon Put a frog directly into the hot water pot, because it is very sensitive to the adverse environment, will quickly jump out of the pot.
If you put a frog in a pot of cold water and heat it slowly, the frog will not immediately jump out of the pot. The result of the gradual increase in the water temperature is that the frog will be boiled to death, because by the time the water is too hot for the frog to stand, it is too late, or unable to jump out of the pot.
The frog phenomenon tells us that some sudden changes are easy to alert people, but what can kill people is the feeling of good, the gradual deterioration of the actual situation, not conscious awareness.
Revelation: Some mutation events are easy to arouse people’s alarm, but what is easy to kill people is to feel good about themselves, and the gradual deterioration of the actual situation, without conscious awareness.
Application: Cutting your losses in time is king.
Whether the reverse move is violent or slow, as long as you deviate from your own trading ideas, cut your losses.
Otherwise, it’s not the frog that’s gonna die, it’s your account.
03: The original idea of the crocodile law is to assume that a crocodile bites your foot, if you use your hand to try to free your foot, the crocodile will bite both your foot and hand.
The more you struggle, the more it bites you.
So, in case a crocodile bites your foot, your only recourse is to sacrifice a foot.
In financial markets, for example, the crocodile rule is that when you find yourself trading against the market, you must cut your losses immediately, no delays, no chances.
The Crocodile Law applies particularly well to quantitative trading, with a trading system that claims to combine cybernetics, information theory, quantum physics, chaos science, fractal geometry and holographic theory.
Basically, the Alligator is a compass, keeping you trading in the right direction no matter where the immediate price is moving.
At the end of the 19th century and the beginning of the 20th century, Italian economist Balledo believed that in any group of things, the most important only accounts for a small part, about 20%, and the other 80%, although the majority, is secondary.
About 80 percent of the wealth of the society is concentrated in the hands of 20 percent of the people, and 80 percent of the people only own 20 percent of the wealth.
This statistical imbalance is pervasive in society, the economy and life. It is the 80/20 rule.
The 80/20 rule tells us not to analyze, deal with and treat problems equally, but to grasp the key few in business operation and management.
To find out those key customers who can bring 80% profit to the enterprise, but only account for 20% of the total, strengthen the service, to achieve twice the result with half the effort;
Business leaders should carefully classify and analyze their work, and focus their energy on solving major problems and focusing on major projects.
But what are the common trading theories for indicators?
The following is a small edition for everyone to sum up.
These experiences are four years, how many night and day, collected more than 2000 indicators, of course, 99% from many talk about the master, the moderator of the index, 1% is my so-called optimized combination of indicators.
Finally, a conclusion is drawn that the change of any index cannot be separated from price and quantity.
Through the phenomenon to see the essence, the simple is the best, but also the most real.
Conclusion 1: The complex operation of the index can only bring about the decrease of reference, and the closer to the essence, the stronger the reference.
The form of valence is the K-line, and the form of quantity is VOL!
This is the essence, it is naked, but also the most real.
The extension of any index is based on this. The more complex the extension is, the further it is from the essence and the more ineffective it is.
K-line and VOL are like a naked woman, and other indicators are like her clothes, makeup, and finally plastic surgery.
So the indicator formula can easily lose her nature and become a false thing.
Let’s take a look at MACD: from the price C extend two moving averages MA, and then extend the difference DIFF from the two moving averages, and then extend the difference to the mean difference DEA, and then extend to the double difference between DEA and DIFF, so as to obtain the classic index MACD, and make a mathematical calculation:
If the reference of each extension is 90%, the reference rate of MACD extension for 5 times is 0.9 to the fifth power.
The final reference value is 59%. However, among the indicators I have collected, many indicators extend from MACD, and more indicators extend for dozens or hundreds of times, so the reference value can be imagined.
So I delete.
Conclusion 2: The trend is our only reference, the focus of indicators should be on the trend judgment, not the buy and sell point.
Stock market for so many years, are in the bull market profit, bear market back, and even overall loss.
We have so many indicators, so many beautiful indicators like the best, the best, the money, the stock picks, and yet most people still spit out profits that they should have, and sometimes a little blood, so I think the key is to see the trend.
When the trend is good, I don’t care how you cheat me, I don’t come out. When the trend is bad, no matter how you do, I just don’t come in.
Trends, including policies, are not subject to individual will, and no one can resist them, just as the development of society is not subject to individual consciousness.
Is a kind of inevitability, why do we abandon the inevitable trend, and pursue those uncertain occasional trading points?
Conclusion 3: The more indicators are referenced, the more difficult the operation is and the greater the possibility of failure is.
Everyone engaged in indicators has a large number of indicators in the computer, at least hundreds, many thousands of indicators, are eager to find 100 percent indicators, top indicators, but unfortunately, there is no!
I can also tell you that there won‘t be any more, because if there were, there wouldn’t be any jobs and there wouldn’t be any stock market.
Since the operation accuracy of a single index is not high, so we use multiple indicators for reference. I tell you, this is more lacking in explanatory power. Simple mathematical operation, the accuracy of 80% for a single index is good, right?
I see a lot of people put a lot of high success rate formula together, meet the market is good success rate is OK, the market is not good, loss of money also do not know how to die.
Conclusion 4: Indicators are only for reference, the main force can only make profits by going long, the purpose is to maximize profits.
The participants in the stock market are human, so there is too much uncertainty, who said KDJ high death cross must fall, who dare to say RSI high peak, DDX, win rich, etc. Once the main position, it shows that the main position is reduced, not to mention using our own indicators.
Please remember that indicators are only for reference!
Anti – indicator operation of the stock exists greatly.
Here we need to understand what the purpose of market participants is.
All the funds involved in the capital market are highly utilitarian, and everyone comes to make money. Of course, big funds are in order to make more money. In the current A-share market, most investors take the difference as the purpose.
There’s a problem here, so you have the oscillation, you have the sands, you have the surge, and so on.
To put it bluntly, it is the issue of distribution. Since the main force can only make profits by doing high stock prices, how to operate should be clear to everyone.
Conclusion 5: Overcome the weakness of human nature, form their own profit model.
The weakness of human nature, fear and greed, which is the enemy of stock investors, is most obvious in the stock market, because most of us have not formed their own operating model, their own profit model, such as profit model: 30-day moving average from down to flat up, buy, 30-day moving average down to sell.
That’s the pattern, and no matter what happens, I’m going to do it, and I’m only going to get my share.
It’s a lot less greed and fear.
Less fearless sacrifice, less need to spend all day in research.
