Ahai conducted a thorough review and study of the four major aspects of trading. The content involved is not complex but is based on a large amount of real trading activity, focusing on the organization and restructuring of basic trading concepts. Stable earnings from trading often do not come from the dazzling high skills some might imagine but from repeatedly thinking about, scrutinizing, and integrating basic concepts and logic. The article is written in a plain, concise manner, yet it reveals deep thoughts on probability and systematic trading throughout. Its theoretical framework is clear and concise, making it worth collecting and pondering over repeatedly.
1. Judging the direction of price movements:
To date, humans cannot make absolutely correct judgments about the direction of price movements. No matter what combination of market conditions is formed, as long as there are enough samples collected, we will discover a fact: when the market operating state meets the module definition, prices can rise, fall, or adjust sideways.
Although humans cannot make absolutely correct judgments on the direction of price movements, we can discover the occurrence rates of rises or falls through research on various market condition combinations.
2. Judging the magnitude of price movements:
In the philosophical system of Dow's Theory, there is a theorem called the "Indeterminacy of Primary Upward Waves." This theorem states that the timing and magnitude of primary upward waves are indeterminate. Humans could not determine the timing and magnitude of primary upward waves 100 years ago, and they cannot do so today. Therefore, it is advised that investors should use trend following techniques instead of trend prediction techniques.
The modern direction of financial investment is to pursue the scientific nature of investment behavior, emphasizing the quantitative assessment of investment outcomes. In the process of investment research, the following principle should be followed. Although humans cannot make absolutely correct judgments on the magnitude of price movements, we can discover the occurrence rates of price movements within a fixed range through research on various combinations of market conditions.
3. Basic Inference:
From the above principles, we can derive the following inference: In the financial market, for investors using technical tools, there is no such hard rule as “When condition A is met, event B definitely occurs.” Many technical investors pursue this goal, only to suffer losses in the investment market. When they summarize their experiences, they often conclude: "The failure of the investment is due to their lack of skill, which needs further effort," oblivious to the fact that their pursued goal (when condition A is met, event B definitely occurs) simply does not exist.
Thus, it might seem that technical tools are useless, but that’s not true; technical tools are useful because the market operates on another soft rule: “When condition A is met, what is the probability of event B happening?” Since humans cannot make absolutely correct judgments on the direction and magnitude of price movements, investors cannot pursue the outcome of a single action as their goal in actual investment operations; instead, they must aim for the overall result of N repeated investment actions. From this, we can draw the following conclusion: “In the realm of financial investment, establishing the inevitability of profit from N repeated investment actions on the basis of the randomness of profit or loss from a single investment action is a correct investment philosophy.”
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