The futures market is an extremely tempting market, it is a market where trading is done according to a commonly accepted set of rules of the game, based on one's own decisions and judgments. Its guaranteed money system gives people many opportunities to make small profits. It can make people get profitable, indeed, futures can make people rich.
At this time, people do not know that the financial investment market is not as simple as the graph on the screen in his eyes, do not know what kind of knowledge is needed to master the financial market, only buy and sell in his eyes, start perhaps taste a little sweet, the first war tells the natural confidence increases, full stock in full stock out, gradually he finds out how the market can not go with himself, sold and sold, bought and fell, and the reverse entry point is timely, as if the reverse momentum of the market is worse than his own hand trading. This is the magic of the futures market, make a lot of money or even the result of consecutive wins several times is very easy, and to secure profits, long-term maintenance of profits is certainly difficult.
In the commodity spot market, if the buyers and sellers reach a deal, it is generally a "win-win" outcome, while in the futures market, the futures contract is a "win-win" outcome, so in any case, there must be some investors will be in a passive situation of losses. If investors want to be long-term, stable winners in the futures market, it is necessary to establish investment principles that meet market conditions.
This attraction attracts a large number of investors to take part in futures trading, everyone believes that they can succeed, however, it is because of the diversity of trading methods that makes it difficult for investors to find a suitable trading method for themselves, because the market at different stages has a corresponding trading method to profit, which creates an illusion for investors: there are people everywhere in the market who make money every day, and why they can not always catch it. Investors are easily lost in this illusion, which has its roots in the fact that investors are very sorry for missing any opportunity and will blame themselves, because he often believes that this opportunity is capable of grasping the market's uncertainty, uncertainty, and the inability to determine the source of the investment.
For example, in an uptrend, a novice who sees a commodity in a series of bullish trends will be eager to go for a freeze, be set or raise, which is related to their idea of buying low and selling high in their daily life. Some traders see some form of bullishness in the previous K line, and then the price of the commodity actually rises, and think that this form will look good. In fact, this view is a dependence on his previously recognized knowledge system.
For the newcomer to the market, the biggest misfortune is that his intuition often leads to his mistakes. In last year's copper bull market, an investor looked in the right direction but did not make money, why?
Many of them are very good at managing, negotiating, inviting public relations, expanding the market, and they are familiar with dealing in the marketplace. But futures investing is different, it deals with the futures market, and the market is always right, in accordance with the market needs expertise and technology, which most investors do not have, and can not learn in a short time, so that most investors only have intuition and knowledge of commodity trading to operate futures, the results are not obvious.
After experiencing a number of downturns in the futures market, he finally chose the mechanical trading system as the main basis for his investment decisions.
The concept of a system is derived from human long-standing social practice, in simple terms: it is the process of writing a mature set of trading methods into a program and storing them in a computer. The instructions issued by the computer guide us to complete each transaction.
Investing is also a cumbersome and complex activity, with loss-making trades caused not only by the complexity of price fluctuations themselves but also by various volatility factors from the investors themselves. To survive in the financial market in the long term and maintain stable profits, it is necessary to build an effective system based on a thorough understanding of the market to help eliminate all the interference from price and sentiment on the exchange, ensuring that each trade is low risk and high return.
The concept of a trading system is a system of trading behaviour that is based on the understanding and overall formation of the regularity of the market.
The principle of the trading system: price changes instantly, complex to describe complex is only counterproductive, and it is not conducive to investors to make a quick and effective reaction immediately. The principle of mechanization, systematization, all data is quantified.
(1) Whether a trading system is complete and objective must be demonstrated through long-term statistics and practice that it is able to generate stable profits. The trading method belongs to the scientific type of investment trading method.
(2) A trading system is a complete system of trading rules. It must make clear provisions for all relevant parts of investment decisions. This provision must be objective, unique, and not allow for any different interpretation.
(3) The characteristic of a trading system is its integrity. Each decision point in a complete trading cycle, including entry point, exit point, re-entry point, re-exit point, and so on, has clear and specific provisions, thus forming a complete decision chain.
(4) A trading system without prospecting and avoidance is not a perfect trading system. An excellent trading system does not limit profits, but only losses. System trading emphasizes long-term stable overall gains, rather than emphasizing momentary losses.
Successful traders who have a long-term probability advantage in the speculative market, rather than being isolated, see each transaction as just one of a series of possibilities and probabilities. Due to the uneven distribution of the statistical sample, the occurrence of adverse events and the aggregation, any trading system must face periods of continuous failure.
It is this characteristic that enables the system trading method to effectively exclude subjective human will and personal emotional interference with the signal occurrence process, giving the system a higher operational stability, and the ability to resist catastrophic errors.
A good trading system is a system that has been proven by practice to be able to achieve long-term stable profits, it is complete, consistent, consistent back and forth; a bad trading system is incomplete, intermittent, contradictory back and forth, their trading behavior is chaotic, it is impossible to see what connection this transaction has with the previous one, the entire trading process looks east and west, because it is impossible to win steadily.
This is when investors are more likely to develop a strong desire to break even, and are less willing to wait for the trading system to give a break even signal, but on the whole, a 100% objective systemic break even approach is far superior to an individual subjective decision to break even. The system can help investors overcome psychological swings, hold on to existing positions without being affected by strong market swings, until a greater profit is achieved.
The biggest enemy in trading is not the market but the traders themselves, and our experience of each failure shows that it is not the market that is too smart, but we who are too smart and too self-confident, and we are always defeated in trading by our own subjective emotions, desires.
The theory of system operation is that whatever the cause is that affects the price changes, will ultimately be reflected through the plate, the trading system is only responsible for the plate.
(A) The advantages of operating with a trading system: 1. Eliminate people's emotions. 2. Clear entry and exit points. 3. Consistent transactions are made possible. 4. Keep profits up and losses down to a minimum.
(B) The disadvantages of using a trading system:
Montesquieu, a representative of the French late Renaissance, said: "The hardest thing to do is to remain the same, and the easiest thing to do is to change".
When trading, traders must follow the system's signals. If they are continuously frustrated, they should also not have any doubts about the effectiveness of the system, and should firmly execute new trading signals. For example, when you trade according to the system's signals twice in a row, the system generates a third trading signal, you begin to doubt the system, still worry about making the wrong trade, and worry about the next trade.
No system is absolutely perfect, we are not God, and it is not easy to invest if a trader can accurately capture the timing of market entry and exit. In fact, even the most successful investors in the world cannot do this. All we can do is capture the market momentum and profit before the market reverses.
It is not difficult to understand why a trading system without any "noise" is untrustworthy, and why it is not difficult to understand why the first two mistakes in trading are the cost and cost of capturing the third big market signal. I think that losing money in trading is a great thing, but missing the market is an inexcusable fatal mistake!
Investors ask about price movements in two ways: (1) the people who hold a lot of stocks usually ask, "Please, will the price go up?" and (2) the people who hold a lot of stocks usually ask, "Please, will the price go down?" Well, one of our core mindsets for this kind of problem is, "Don't make any predictions about price movements. We only reflect price movements.
The establishment of a trading system is humanized, while the execution of the system is in some sense inhuman. Following a computer's trading instructions is a mechanical, monotonous, tedious, lonely job that requires great patience and will from the trader. Holding large quantities for a long time and being subjected to strong market fluctuations for a long time, the trader's mood tends to be under great pressure, which requires the trader to use a strong will to suppress their strong flat-out desire.
Therefore, before entering this market, one should first know oneself, understand one's own (human) weaknesses, such as greed, fear, etc., and then find the appropriate way to overcome it, and using a trading system is one of the best ways. Using a trading system is to limit one's weaknesses to the minimum, because the system is complete, objective, orderly, quantitative, and it will in some way allow one to achieve harmony.
(1) Stop loss in the transaction:
What is the law of survival: first stop unconditionally, and always stick to it and don't hold on to it.
The price of time will become more expensive when the direction of the holdings is opposite to the movement of the market. In adverse trading conditions, if the right action is not taken in time, the following scenarios are often encountered: 1) the collateral invested is just about to be penetrated; 2) the book profits can be lost; 3) all capital funds face a disastrous end due to the reverse trend.
Stopping means giving up. Giving up may be an opportunity, but it is more likely to be a disaster. The benefits of stopping the exit are twofold: 1) the timing of the entry is not right, which does not confirm whether a directional error was made at the time of the decision to leave, but we must choose to leave.
The only way to avoid this situation is to stop in time. So stop loss is always right, wrong and right. The deadlock is always wrong, right and wrong.
Losses are temporary, necessary, and integral to success. Giving up money temporarily to preserve capital strength but also to get more and better returns in the future. As you can see, stop loss is a way of survival, a "pilot's fall", an embodiment of the first principle of the market.
Here, it is particularly important to emphasize that the conditions for entry and exit are not equal. The reasons for entry must be sufficient and clear; however, the reasons for exit are different and can be simple and subtle. If you try to seek sufficient reasons for exit, then the trade will inevitably get stuck in fear; the excessive pursuit of profit maximization makes it easy for us to challenge the limits of the market and thus go to greed; we should leave room, ignore the subsequent trend of declining marginal profits, and thus put investments on a losing streak.
In view of this, a mechanical trading system can:
Firstly, it relieves the psychological stress of the trader while eliminating many emotional distractions. The trader can enter the market by simply following the signals of the mechanical trading system while operating, and the trading process is naturally free of emotional interference and does not generate much psychological stress.
Secondly, it helps to control risk by trading with emotional guesses or so-called "intuition", which results in only taking on more risk. While trading with a mechanical trading system involves only taking on a limited risk (i.e. executing a stop loss).
Again, it ensures consistency of the method used. Only by using the same method continuously can the win-loss rate be realized; while the miss-loss part can be compensated for by executing a stop-loss order, thus maximizing the overall profit.
(3) Management of funds in transactions
Therefore, a high ratio of active collateral will cause huge fluctuations in investment profits and losses, both the potential for a capital explosion and the possibility of rapid destruction. The emergence of this extreme phenomenon is the result of a psychological drive, this is not the way of investment, and its ultimate outcome is eliminated by the market without exception. One example can be illustrated: a small car driving on a highway, if the speed of 120 yards is safe and comfortable, then every 10 yards increase in the probability of an accident will show a technical increase in speed; when it reaches more than 202 yards, the probability of an accident will not increase by one hundred percent.
In practice, the idea of "safety first, profitability first" should be established, and it can be said that the state of money management is a reflection of the concentration of the trader's inner world. Good money management helps the investor to maintain a harmonious relationship with the market, helps the trader's level of money, and helps to improve the quality of their trading. The fact is that the time required to fully implement the quality of the trading is not enough.
(4) Waiting in the transaction:
For investors who are gambling in the futures ocean, waiting means a principle, a avenue, a confidence. In my view, waiting is at least sober. Resting waiting is a positive defensive state. Many investors do not understand its intrinsic meaning, and the reason we do nothing is because "not trading" is perhaps the best deal, it is a form of renunciation, a form of submission and respect for the objective market.
We need to understand: the market is the protagonist in the market changes, and the performance of investors is only a small supporting role. Leave enough time and space for the market, rather than busy yourself; wait for the market to give a clear direction, otherwise the busy end will be nothing. The key to the question is: why people are always busy This is the result of desire.
The reason for not doing so is for the sake of security, for the sake of serving a big strategic plan, not for the sake of immediate small profits or blindly following the lure of profit. The famous Wall Street investor (speculator) Master Soros once said that rest is actually part of the job, only away from the market, to see the market more clearly.
For medium-term investors, "lazy" may be able to make good returns, while long-term "lazy" traders, in a bullish market, often reap more than investors who frequently enter short-term. So it is often a game of the wise, and futures investing focuses on deep understanding and insight into the market, and therefore investment decisions. If the right investment decisions are made, they can be sure to make the right investment decisions in a year; if not, they will often make more losses if they do not make the right investment decisions.
It should act as a lighthouse for our thoughts, a guide to our actions. A mechanical trading system means constraints, and we must accept these constraints and make them part of our investment life, a natural habit. The path to wealth is a hidden road, as one passage in the Bible says: "The gate to perdition is wide, and the road to it is narrow, and few there be that enter by it".
This article is translated from the blog of QuantWay.