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stable profit = information × strategy × trading psychology
Sustained and stable profit = information × strategy × trading psychology The above strategies represent a broad sense, and we can subdivide strategies into trading, hedging, and asset allocation. We'll spend a few pages focusing on one of the trading strategies that most investors love - trend trading. Trend trading is a strategy favored by most investment traders because of its simple and easy-to-understand concept and the potentially great rewards it can bring. Trend traders don't care what causes the price to move, and they always operate in a clear direction.
The above actually points to two important points,
The ancients said: "Those who know the current affairs are the heroes." The current affairs refer to the vision and the general trend. Those who can grasp the general trend will naturally have a higher chance of success; relatively speaking, if you focus too much on small details, you will not only work hard, but also easily overlook the direction of the overall trend. Therefore, it is particularly important to take a step back and look at the big picture. Only by looking at the overall situation, grasping the trend, making decisions and then acting, can the decision be easy and correct.
This concept also applies to the investment and trading market, which is the basic spirit of the concept of Anchor Chart that we will introduce next to improve our chances of grasping the big trend.
Anchor Chart contains three line charts, each with different time intervals: T, T+1, T-1. T refers to the time interval of the line graph that investors are most accustomed to watching, while T+1 and T-1 are the time interval of T increase and decrease by one time interval unit respectively. For example, if all my trading decisions are based on the trend of the weekly chart, the T chart is the weekly chart, and T+1 and T-1 represent the monthly chart and the daily chart respectively. Just like the following chart presented by AMBA (Ambarella Inc.): AMBA (Ambarella Inc.)
And how to use these three pictures? It's actually very simple! Continuing the above example, if the weekly chart is the main chart I use to make trading decisions and generate trading signals; then the T+1 monthly chart is used to "look at the overall situation" to determine whether the underlying stock price is in a long-term in the trend; finally, having confirmed the trend from the monthly chart and the trading signal from the weekly chart, we use the daily chart to accumulate positions.
At the stage of confirming the trend in the T+1 chart, we should look for the target that can identify the trend situation at a glance. Like the monthly chart of AMBA in the above example, we can quickly judge that the stock price is in a wave of rising .
There are many trend following indicators today, such as moving average, MACD, ADX, DMI, etc. We can use the signals generated by these indicators to determine the timing of entering the market. Here we illustrate with a very simple moving average crossing strategy: (This strategy is only for the convenience of conveying the concept of Anchor Chart. Later, we will focus on the actual trend strategy, and users can also replace it with their own habitual trend strategy) Bullish signal: 8-week Exponential Moving Average, Golden Cross 21-week Exponential Moving Average
On the T-1 chart, we can build disciplined positions based on price movements up and down. Why do you need to accumulate positions instead of one entry? The reason is that we can never get a perfect entry point, but we can get a better average entry cost by entering the market in batches according to the short-term ups and downs of the stock price. This way, even when the stock price is volatile, we will not feel pressured by the high entry cost.
Here we use the 8-day, 21-day, 34-day and 55-day moving averages as the basis for the accumulation position. As shown below:
Trend Trading - Accumulate Positions Gradually
Once entered, trend traders always hope to ride the trend as long as possible, so how to manage the position after entering the market is particularly important. This goes back to another important point we mentioned earlier, when should we play?
The most important thing in trend trading is to " follow the trend " , that is, when the stock price has remained strong, we don't need to manage it by ourselves, but let the stock price have a certain space to prove itself; but if the trend shows signs of weakening, We must also be decisive and rational in the management of the site.
Continuing the above discussion, we use the 8-week and 21-week exponentially smoothed moving averages to manage our positions, and we use the following exit methods:
1. Once the stock closes below the 21-week exponential moving average for two consecutive weeks or
2. Once the 8-week SMA dies and crosses the 21-week SMA
It depends on which condition (1.) or (2.) occurs first.
Trend Trading - How to Get Out
We can see the above example of AMBA on the weekly chart, where the stock has continued to hold above the weekly 21-EMA, creating an eight-month bullish trend. Although AMBA was recently criticized by Citron Research, a well-known international short-selling agency, the stock price was absurd, shocking the market and causing AMBA to plummet by as much as 20% in one day, but from the weekly chart, the stock price is still maintained in a long-term trend. We can continue to stick to our The exit strategy does the operation.
Of course, the above strategy of entering and exiting the market is a bit simple, and the intention is to let everyone clearly understand the concept of Anchor Chart through such an example. As long as they can grasp the essence of "following the trend", readers can test any entry and exit strategies and find the most suitable management style for them.
Of course, to be a successful trend trader, you must also have good discipline and emotional control. Can tolerate the ups and downs of the market while pursuing major trends. When in a major trend, the pressure of trend traders is relatively small (such as the AMBA example above), and position management can be achieved with a rational attitude. However, if the trend is unclear or the market is volatile, trend traders must have a