Traders deal with prices every day, especially those traders doing technical analysis. Price is the most important decision-making basis in their trading system, or even the only basis: just looking at the price is enough. So, what is the price, how do we treat the price?
The most common argument is that price is a manifestation of value. It’s a default that everything have its intrinsic value, but how to evaluate, how to express after evaluation? This requires price.
The value is invisible, and the price is visible and tangible. There are differences in value, but a compromise is reached on the price.
The price given by a fair and open market may not be the best way of value assessment and performance, like a $100,000 diamond ring, which may not accurately measure the love of men and women, but it is absolutely not bad. .
Prices in the financial market, like the closing price of the soybean meal futures contract 1705, is closely related to the transaction price in spot operations, and there are significant differences. I remember that there was a big boss who had been immersed in the spot industry for a long time. He told me that the spot price is the real price and the futures price is a group of high-intelligence rogues who take advantage of capital to fool around –so tell his perception of futures market.
In my view, the futures market reflects the pricing process. The trend in everyday and everyminute can be seen as a comprehensive reflection of all mental activities of participants. It includes their rational thinking and irrational emotions. Thanks to the existence of the futures market, we can study the internal state of the market like an ECG.
Technical analysis Traders are less sensitive to “value” and even don’t agree with the concept. Take stocks for example, stocks price is not necessarily related to company qualifications. In theory, good companies are always scarce, scarce is always expensive, but in a phased situation, good companies may be underestimated, while broken companies can be hot. In the A-share market, the number of people who are injured because they believe in “value investing” is countless.
Price is the product of the market and the most important characterization of the market. Therefore, to define the price, you must first define the market. What does the market mean for you?
For the spot dealers, when they talk about the market, they immediately think about the goods and their supply, circulation, and demand. In their minds, factories, warehouses, logistics, research, negotiations, contracts, payments, customer relationships, etc. emerged. These are very figurative. But for me it doesn’t make sense. This is not my market.
The market, as the name implies, is the place where trading activities take place. The market is like a trader, just like the world. Because the world is nothing more than a place for people to act.
If doing a simple distinction, there are things except me. After defining my scope, there are world beyond the scope. In the same way, remove me, the rest of the object is the market.
For me, the market is a group of people except me. More precisely, the market is a group of people and their activities. Then the price, naturally, is the trajectory of crowd activities.
Why do people act? Or why is the market changing? Because the market is a highly open system, it is not closed. It absorbs information from the outside and transmits information to the outside world.
In terms of absorption, it has too many sources of power: supply and demand balance, economic policy, political situation, climate change, and so on. The crowd is always motivated by a large amount of information. They either have the resources to have the advantage, or believe in a certain assertion, or simply because the profit and loss itself incites the biological instinct, so they act. Various actions have stirred up each other and triggered price changes.
In terms of delivery, price changes are the strongest signal the market can give. As Soros’s theory of reflexivity reveals, the interaction between the inside and outside of the open system is endless, absorbing and transmitting are giving feedback.
As a relatively pure technical analysis trader, I respect the fundamental analysis, but I won’t admire it. It is like the Army respects the Air Force and is willing to fight with it, but is unwilling to join in.
Fundamental analysts always try to collect more, more accurate, and more realistic information, and then use advanced financial models to use the information. If the actual effect is not good, either there is a problem with the information collection or the model. Considering the infinite magnificence of the world, continuous and consistent high-quality information collection is very difficult, and the model? It is ultimately an abstract interpretation of the truth (the root cause), not the truth itself.
No matter how the fundamental information changes, it has no power, and cannot directly drive price changes. It must first enter the human brain and make people believe. It can only affect the price through the third one, and it is meaningless if it lacks human as media. Human activity is the direct cause of price changes. Technical analysis traders don’t care about the truth (root cause), we care about people (direct cause).
The positives of the financial model are not good, unless the market interprets it as positive.
In any case, the activities of the crowd will leave a trail. Can this trajectory reflect the value? We don’t know, we don’t care. But it definitely reflects the crowd’s perception of value. For example, price of copper is now 45,000 yuan. We understand this objective fact: not a ton of copper value of 45,000 yuan, but at this moment, people think that the value of copper is 45,000 yuan.
We only want to make money. Money is not from fundamentals, but from people. K-line, volume, moving average, and ATR are all tools we use to monitor and measure public activities. The so-called technical analysis is to try to grasp the psychological and behavioral characteristics of the crowd, and then build a competitive advantage against the crowd - turn their money into own.
Like a swordsman never act first but pay attention to the enemy to act. When the enemy is not moving, I just need to be prepared. When the enemy moves, the loopholes will come out, time to attack. This is similar with technical analysis: hysteresis.
We are trajectory analysts, so we have to wait for the trajectory to make analysis and judgment. Therefore, we cannot be advanced than the analysis object. In other words, we respond according to the crowd, but we can’t react earlier than it. How to do? There is only one way, and that is, to response better.
Ordinary people basically fail to do the transaction because the response is not good. As long as humanity remains the same, greed and fear remain unchanged, then the instinct to avoid disadvantages remains unchanged, the extreme aversion to losses leading to refusal to implement stop loss; the extreme hunger for profits leads to excessive risk taking. These will not change.
In this way, the movement track of the crowd will definitely have something we call “trend”. It is nothing magical but a special type of movement track: it is malleable in space and lasts in time. The development trading system accordingly, although lagging behind, it can still be stable in profit. We are willing to step back but cannot help moving forward. This is the first-class wisdom.