Why do you still fail to profit from investments even after understanding many technical indicators? The fundamental reason lies in your trading system, followed by your discipline in implementing the trading system. To profit from investments, it is not only necessary to be familiar with commonly used technical indicators, but also crucial to apply these indicators to form a practical and actionable trading system.
A trading system is the logic and rules you set for yourself to make trades. It guides your trading behavior, including direction judgment, position finding, entry points, exit points, capital management, and mindset management, among other things. The purpose of a trading system is not to seize the opportunity for sudden wealth in one or two instances, but to pursue long-term, stable, and continuous profitability.
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Features of a Trading System
A complete trading system generally consists of three parts: buy signals, sell signals, and filtering conditions.
Buy Signal: What conditions must the market meet for us to enter the market;
Sell Signal: What conditions must the market meet for us to exit the market;
Filtering Conditions: What conditions must the market meet for the system to issue invalid buy or sell signals.Taking a common traditional trading system, the Triple Moving Average System, as an example:
The Triple Moving Average System, as the name suggests, is a trading system composed of three moving averages (short-term moving average, medium-term moving average, and long-term moving average).
Its buy signal: The short-term moving average crosses above the medium-term moving average, which is commonly referred to as a "golden cross";
Its sell signal: The short-term moving average crosses below the medium-term moving average, which is commonly referred to as a "death cross";
Its filtering condition: Above the long-term moving average, only long positions are taken (no short positions are initiated upon a death cross stop loss); below the long-term moving average, only short positions are taken (no long positions are initiated upon a golden cross stop loss).
A trading system is composed of technical indicators, so it also has the "trilemma" characteristic of technical indicators: A trading system cannot simultaneously achieve high frequency, high success rate, and high profit ratio.
Similarly, in the selection of system parameters, it is impossible to balance sensitivity and tolerance.
For example, in the Triple Moving Average System, if the parameters (5, 10, 30) are chosen, it will inevitably be more sensitive than choosing the parameters (10, 20, 60), and it can issue signals earlier; similarly, its tolerance is worse, and it is more likely to be misled by false signals.
That is to say, the former has a higher trading frequency and a higher profit ratio; but at the same time, it must be prepared to accept the problem of a lower success rate and more stop-loss occurrences.
Application of the Trading SystemA trading system is not necessarily better the more complex and profound it is. A good trading system should be simple and clear, with strong operability. It is important to note that any trading system has the potential to fail; and the pursuit of multiple trials and errors in technical analysis will inevitably turn this possibility into a certainty. The same goes for profits. If one cannot face this, they cannot truly enter the door of investment profit, and will instead turn to believe in the magical secrets of swindlers, falling into the illusion of pursuing the Holy Grail.
What investors need to do is to believe in their own trading system, and even when all information is unfavorable, they can still invest firmly according to the signals given by the trading system, even if they know they will lose, they can also be willing to lose the part we must lose.
Losing money is because the success rate of your trading system is too high.
Pursuing the success rate of trading one-sidedly is the most common mistake for beginners, without one. Correct trading is not necessarily successful trading. Persisting in correct trading will eventually succeed; and being obsessed with the success of trading often fails to make a profit.
A typical scenario is that when newcomers are trapped after tentatively building positions, they do not accept failure and admit losses; instead, they continue to buy more, trying to reduce the cost, and then "unharmed" when the stock price rebounds. This kind of operation that is obsessed with the success rate may be successful once or twice, but as long as it fails once, it will cause the investor's available funds to be trapped; when newcomers have no money to continue "bottom fishing," their choice will turn to "stubbornly holding on" to maintain their "success rate."
Pursuing a high success rate is not a problem; the problem is that an excessively high success rate inevitably leads to a corresponding low frequency and low odds. Many times, people lose money not because the investment success rate is too low, but because they pursue too high a success rate. Giving up the pursuit of the illusion of success, calmly facing failed trades and losses, can instead rely on the inevitable profits of the system to obtain substantial rewards in investment trading.
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