Lesson 2
Being A Technical Analyst
One of the main ways traders approach the market is that of technical analysis. A technical analyst doesn't look at income statements, balance sheets, company policies, or anything fundamental about the company. The technician looks at the actual history of trading and price of a security or index. This is usually done in the form of a chart. The security can be a stock, future, index, currency or a sector. It is flexible enough to work on anything that is traded in the financial markets.
The technical analyst believes that the market price reflects all known information about the individual security. It includes all public and insider information and reflects all the different investor opinions regarding that security.
Just as fundamental analysis looks at the past to help make a decision, technical analysis also incorporates the past to aid in the decision making process. However, the technical analyst believes that securities move in trends and these trends continue until something happens to change that trend. With trends, patterns and levels are detectable.
The tools of the technical analyst are indicators, patterns and systems. These tools are applied to charts. Moving averages, support and resistance lines, envelopes, Bollinger bands and momentum are all examples of indicators. These indicators help tell a a story and just as a doctor looks at x-rays to help him make a decision, an analyst looks at charts to help him make a decision.
Many people believe that to buy and hold is the right strategy for owning securities and this is fine in some circumstances. It can also be beneficial to buy and sell the same security many times in a given period. ABC.inc might be a company you want to own for the long term and that's fine. However, there's nothing wrong with buying at 50, selling at 67 and buying it back at 55. There's also nothing wrong with buying at 50, selling at 67, shorting the security at about 67 then closing your short at 55 and buying it back. In the previous example you have made your money work a little more efficiently. In the case of buying and holding you only make money when the security goes up. Why not made money when the security goes up, comes down, and goes back up again. This way, your money has worked harder for you. Technical analysis can help in predicting turning points and direction in prices.
Before applying technical analysis make sure you thoroughly understand the principals that you are applying. Read as much as you can and find a few forms of technical analysis that you feel comfortable with. Remember you only need to find one thing that works in order to make money.
Lesson 3
Trading System
Now you have decided that you are going to trade a particular security and you need to find a way of entering and exiting the market. So, how do you approach it, do you just jump in with a gut feeling or do you use some kind of system to help you make the decision.
We will look at a few ways traders decide on the best way to make a decision. First there is just guessing which way the market is going to go. Now as surprising as it may seem there are many trader who do just that. They take a look at a chart or some news and then decide if they should buy or sell. If they make money consistently then it is hard to argue that this is the wrong way to trade the market. The problem I see with this type of trading is that it is almost impossible to reproduce results consistently. In other words the trader that trades by instinct can never really pass on his knowledge, as there is no clear rules that he applies to the market on a regular basis. I know a few trader who trade like this but unfortunately I don't know any who have gone the distance and are there year after year.【交易知识macd.org.cn收集整理】
Traders who apply a method to their trading inevitably have better results. If you use the same criteria to each trade then you at least have a reference point from which to work. If you are losing you can then change specific things in you're decision making process in order to find the right criteria. By using a method in your trading you are moving towards the scientific approach and just as a scientist will carefully research and record each experiment so should the trader trying to perfect the method he is using.
If you apply XYZ as your reason for entering a trade and you can see after a predetermined amount of trades that it is not working then you can change X, Y or Z until you find something that does work. Typically the method trader has researched a particular theory he has by doing back testing (applying the theory to historical charts) and comes up with indicators, tools or some other method of determining the entry and exit criteria. If at the end of his research he find that he can make money he will then apply that method to the market. As he still has to make the decision to enter or exit there is still the human element to consider. Even though his method tells him he should enter a trade for some psychological reason he decided not to take the trade. There lies the weakness of the method trader. Even though he knows he should enter or exit a trade he doesn't because at that particular moment in time some voice inside him tells him not to do it. The solution is to make it mechanical as much as possible.
Mechanical trading systems. There has probably been more written about mechanical trading systems than any other topic in trading. The premise of mechanical systems is that a particular theory he's been beck tested over a long period of time and has consistently made money. There is no emotion involved with the decision making process at all. If the system says buy the security then you buy or an order is automatically done for you. This takes away all the emotional up's and downs and all you have to do is buy the system and supply the money. I have been in heated debates with other trades about the value of mechanical trading systems. Some traders swear by them and others think they are a waste of time. Which is true only the individual can answer. My own personal experience with systems after having tried over twenty different ones is that they typically produce unspectacular results and after a time they tend to blow up and lose money. The other reason I am not particularly fond of systems is that when you experience large draw down (your account goes backwards) you tend to lose faith in the system just before it kicks in.
Conclusion
Trading just as in life there are no correct ways to trade only what suits the individual. Some people will be suited to giving it their best bet whilst other will prefer to use a particular method and yet others will prefer mechanical systems. It's difficult to argue with a man who is making money. My own personal preference is to use a well thought out method, which is 90% mechanical, but the final decision is left to me. Nothing will beat your own research and hard work. If you can find a successful trader and ask him to mentor you this will save a lot of time on the learning curve. Learn every thing you can from him and then adapt it to suit your own style of trading. On closing, ask yourself this question? If you really did have the goose that laid the golden eggs would you sell it?
