Why Does Technical Analysis Often Lead to Losses?

Talking about someone who destroys three views, I think it passesTechnical indicatorsThose who can make a fortune in the stock market will never make much money in this life, because they don't understand the underlying logic of the market at all. Let me share my own story. When I first learned trading more than ten years ago, I began to study various indicators like moving averages, Macd, KDJ, Bollinger Bands, volume, energy, etc. My head was full, but my wallet was empty. I kept losing money. At that time, when I saw active people in the group, I asked the boss to ask others for advice. I found that many people were using MACD for analysis. What they were talking about was a clear and logical explanation, such as golden cross on the water, dead cross on the water, top divergence, bottom divergence, question, did you make money? Then he started to curse, he was making a lot of money, the market was too bad, and the crops were too shameless.

Today, ten years later, I useprice action theoryWhen it comes to trading, I almost never look at indicators now, because I know that indicators are calculated from prices, prices are determined by the buying and selling game, and buying and selling behavior is caused by traders’ expectations, and expectations are based on the current market situation. So when analyzing, I reverse the analysis, analyze the expectations of participants based on the current market, and then use price behavior to support your judgment, and your wallet will slowly bulge. I don’t expect many people to understand this last paragraph. Let’s talk about price action.

Because the trading techniques that 80% of people learn are actually wrong. To be precise, a single technique is correct, but when combined together, it is wrong. For example, using vertical lines to enter the market is only effective in specific areas, such as near the trend line or the main support line. Therefore, the trading system must withstand logical reasoning. A trading friend shared that his system looks like this. The MACD indicator is only long when it is above the zero axis, and it is only short when it is below the zero axis. When the two moving averages form a golden cross, enter the market with long orders. If a dead cross forms, enter with short orders. As soon as I heard it, I knew that this system must be losing money. I didn’t even need to listen to the parameters. Why? Because it is illogical, if you think about it, the MACD indicator is calculated using moving averages. The nature of its zero axis is no different from that of a golden cross or a dead cross. So you can use this to determine the direction, but it cannot be used as a starting signal.

Is technical analysis useful? Let’s talk about the conclusion first. Technical analysis is useful and very useful. It can make money and make money stably. For small retail investors without capital and information advantages, technical analysis is almost the only way out. Many people are superstitious about fundamentals, talking about industry development, keeping silent about financial statements, and casually following policy trends. When it comes to the market, various indicators can resonate, and they call it the combination of fundamentals and technical aspects. As a result, neither end is done well. We only need to know that if a stock rises by 50%, it will definitely rise by 10% first. The best basis for judging that the market will rise is that it is rising. We only need to follow the trend instead of predicting the trend. Trading is an art, the art of coping rather than predicting. The candlestick trend is drawn by real money. The candlestick can speak. The key is whether you can identify it.

Technical analysis will never go out of style because all the buying and selling, sentiment, and financial information is in it. Remember the three major assumptions of the theory: price contains everything, the trend will continue, and history will repeat itself.