Often listen to some investors complaining that technical analysis methods are not reliable, and some even think that technical analysis methods are useless. I believe that some investors have such complaints because they cannot correctly understand and recognize technical analysis methods, and they misuse technical analysis methods in market practice. The technical analysis method is a scientific summary of market experience. After several generations of research, innovation and development in the modern market, the technical analysis method system has become more mature and perfect. However, technical analysis methods also have their limitations. For example, a technical analysis method is not a panacea. It may be suitable only for some specific market environment, but it is powerless for another market environment and may even lead to errors. Therefore, correct understanding and in-depth understanding of the characteristics of technical analysis methods, recognizing the market environment applicable to each technical analysis method is the key to effective application of technical analysis methods.
(1) Over-reliance on technical analysis results. Some investors believe that technical analysis methods should be accurate analytical tools, so they are superstitious about the predictions drawn from an analytical method. I encountered an investor T at work. T is an economics lecturer. He is very fond of technical analysis methods. Once, he made 50 units of soymeal futures selling orders at 2,900 yuan/ton according to his technical analysis results. As a result, soybean meal futures did not fall and went up, and broke through 3000. At the key resistance level of the price, I urged him to stop the loss as planned, but he refused to implement it and took out the drawings and explained: “I still insist on bearish because there is a technical analysis method to support my short view.” Finally The soybean meal futures soared to over RMB 3,400/ton, and the investor suffered heavy losses.
(2) Use an analytical method as a universal tool for market forecasting. Some investors think that every technical analysis method can be applied to any market environment. For example, regardless of whether the market has a trend or no trend, they all have to look at the moving average, or whether they are clear or not, they are obsessed with the waves theory. ̈ It is obvious that the moving average method is generally applicable to a trending market. However, if it is used in the oscillating consolidation market, the information it buys and sells is mostly a false signal. If investors use this information to make a trading, they will be punished by “left slap, right slap”, and some investors are in the trading. Buying also loses money, and selling also loses money. The reason is this. Wave theory analysis is one of the best and most valuable technical analysis methods recognized by investment guru, but it is not omnipotent. In practice, we often see that sometimes the market wave shape is very clear, very easy to identify and count, but when the market is too strong, due to the extension and extension of the waves, the waves are confused; when the market is in a trendless During the consolidation period, due to the multiplicity and various structures of the adjustment waves, the number of waves is very complicated or easy to be wrong.
(3) Ignore the market environment and misuse technical analysis methods. Some investors do not consider the market environment, unilaterally and habitually apply their own familiar technical analysis methods, such as the habit of applying moving averages and KD indicators, and lack of research on the application of other analytical methods. Some are also accustomed to using a single analysis method, forgetting the teachings of Dow’s “different analytical methods should be mutually validated.” The above misunderstanding and misapplication have greatly affected the effective use of technical analysis methods.
Practice has proved that the key to the application of technical analysis methods is the correct understanding and recognizing of technical analysis methods. I believe that the technical analysis methods should be correctly understood from the following aspects:
(1) The technical analysis method is a mirror, and history will repeat itself, but it is by no means a simple repetition.
The emergence of technical analysis methods allows people to use the historical information of the market to make inferences about future market changes. The pioneers of technical analysis believe that “history will repeat itself,” but this reenactment is by no means a simple repetition. For example, the Shanghai Composite Index has experienced a 7-year bull market, showing a complete five rising waves. Among them, 1, 3, and 5 push waves have 5 sub-wave structures, but their internal structure, running time, and length of the waves. They are all different.
(2) Technical analysis mostly uses statistical analysis as a means, and its analysis result is a probabilistic event, not an absolute event.
This understanding is crucial. It allows you to objectively and dialectically treat the results of each technical analysis without making any of the mistakes mentioned above. For example, after the closing of the market on a certain day, analysts A and B analyzed the trend of the next day’s soybean futures based on the internal information of the Dalian soybean futures market. A predicts that prices will rise, and B predicts that prices will fall. It can only be determined by the price trend of the next day, and no one can decide before this. This example shows that the market analysis result is only a kind of prediction. It may or may not be correct. The prediction result should be used as the basis for formulating the investment plan, but the plan must be prepared to cope with the error of the prediction result. The stop loss item in the investment plan is the necessary measure to prevent the analysis result from going wrong.
(3) Each technical analysis method has advantages and disadvantages, and each is applicable to a certain market environment, and is not applicable to all markets.
For example, trend indicators (moving average method, etc.) are suitable for use in a market with a trend, and in the consolidation market, in general, its application value will be reduced. The swing indicator (strong index, random index, etc.) is suitable for consolidation, and the application value is reduced in the trend of the market. Therefore, there is no difference between the technical analysis methods and the difference between the applicable and the inapplicable to the specific market. Do not give up some methods easily, and do not arbitrarily apply a certain method. Investors must master the application characteristics of technical analysis methods and select different analysis methods for different market environments.
How to use technical analysis methods? I propose the following points:
(1) Each technical analysis method must be carefully studied and deeply understood. While mastering the basic application knowledge of the method, it is necessary to focus on understanding its advantages and disadvantages and the applicable market environment.
In the market analysis, the choice of an analytical method is like doctors treating diseases and medications. Different treatments should be used for different diseases, and different prescriptions should be used for different diseases. Although a prescription can not cure all diseases, it can play a role in the treatment of certain diseases. Similarly, a technical analysis method cannot effectively predict all markets, but its prediction for a certain type of market is very effective. Therefore, we must use the strengths of each analysis method to avoid its shortcomings and beware of misuse.
(2) Pay attention to the mutual verification between different methods.
The originator of technical analysis methods - Dow Jones, in the description of his theory, emphasizes the mutual citation analysis between different methods. This is an important rule of technical analysis. Wave theory master Bochet is the champion of the US Options Trading Competition. He is good at grasping the bottom of the market. According to reports, he used the cross-analysis of periodic analysis, wave analysis and the opposite theory to judge the stage of the market. I have a profound understanding in the analysis and practice. When using the technical analysis method to analyze the market trend, it is necessary to use the fundamentals to confirm. The market is complex and ever-changing, and simple analysis is bound to be error-prone.
(3) Be sure to have your own mental preparations that will make mistakes and correct mistakes.
Practice has proved that no matter how closely analyzed, the possibility of error still exists. The forecast can only provide the possibility of an event, and cannot provide the certainty of the event. The conclusion of the analysis must be confirmed by the market. Don’t be superstitious about your analysis. When the market has proved that you are wrong, you must resolutely and decisively correct it. “The market is always right, and the mistake is always your own.” This motto is a must-have for mature market analysts, and must be kept in mind in the application of technical analysis methods.