Jump out of the trading cycle of "losing money when buying and selling"

"Buy and lose money, sell and lose money" is a kind of trading cycle. Bad trading psychology, fear psychology, blind trading, improper use of analytical methods, etc. may all produce this trading phenomenon. The author only analyzes this strange phenomenon in the use of moving average analysis methods.

Moving average analysis is one of the most common and effective technical analysis methods used by market participants. However, there are also many investors who often fall into the "buy and lose money, sell and lose money" trading cycle in the process of applying moving average analysis.

First, the reason for falling into the trading cycle of "buying and losing money, selling and losing money"

In the process of using moving average analysis methods to guide trading, investors did not really understand the application essentials of moving average analysis methods, resulting in the following mistakes:

1. Pseudo-crossing buy and sell signals that take advantage of moving averages

Moving averages are divided into fast and slow lines. For example, the 5-day, 10-day, 20-day, 30-day, 60-day lines in the daily line... The 5-day line is the fast line relative to the 10-day line, and the 10-day line is the slow line relative to the 10-day line; the 10-day line is the fast line relative to the 20-day line, and the 20-day line is the slow line, and so on; the 5-week, 10-week, 20-week, 30-week, 60-week line in the weekly line... The 5-week line is the fast line relative to the 10-week line, and the 10-week line is the slow line, and so on; the same is true for the monthly line.

The so-called cross-trade signal is a buy signal through the slow line on the fast line, or a sell signal through the slow line under the fast line. This cross-trade signal generally only focuses on two moving averages. According to the validity, it can be divided into effective cross-trade signals and pseudo-cross-trade signals (also called invalid cross-trade signals).

The characteristics of effective cross-buying and selling signals are: the slow line and the fast line point in the same direction; the fast line crosses the slow line in the direction pointed by the two lines; often in the same direction as the price trend.

The characteristics of pseudo-crossing buying and selling signals are: the direction of fast and slow lines is not very consistent; generally, the slow line has no direction or direction is not significant, only the fast line has directionality; often the opposite direction of the price trend.

When the market price is in the consolidation stage and there is no obvious trend, if investors use moving average crossing buying and selling signals to guide transactions, it is equivalent to trading according to false crossing buying and selling signals, and it is easy to fall into the vicious circle of chasing up and selling down. The result is bound to be "buy and lose money, sell and lose money".

2. Pseudo-moving average combination buy and sell signals using moving averages

The so-called moving average combination is the combination of the relative positions of more than two moving averages. According to the relative combination positions of the fast and slow lines and their significance, the moving average combination is divided into short moving average combination and long moving average combination.

The characteristics of the short moving average combination are that the fast line is below the slow line, giving a sell signal, which can be further divided into the effective short moving average combination and the pseudo-short moving average combination according to the validity of the signal. The characteristics of the long moving average combination are that the fast line is above the slow line, giving a buy signal. According to the validity of the signal, it can be further divided into the effective long moving average combination and the pseudo long moving average combination.

The characteristics of an effective multi-headed moving average combination are as follows: first, there is an obvious price decline or finishing stage before the moving average combination appears; second, the fast line is above the slow line in sequence, and the direction of the fast and slow lines is the same; third, the moving averages echo each other, and the spacing is relatively uniform and moderate.

The characteristics of the pseudo-long moving average combination: first, the price is still in the finishing stage or the price is already at the end of the rising stage; second, there is a large deviation in the direction of the fast and slow line; third, the moving average combination is too divergent, the mutual spacing is too large or the moving average becomes slower, and the spacing becomes smaller.

The characteristics of the effective short moving average combination are as follows: first, there is an obvious price rise or finishing stage before the short moving average combination appears; second, the fast line is above the slow line in sequence, and the direction of the fast and slow lines is the same; third, the moving averages echo each other, and the spacing is relatively uniform and moderate.

The characteristics of the pseudo-short moving average combination: first, the price is still in the finishing stage or the price is already at the end of the declining stage; second, there is a large deviation in the direction of the fast and slow line; third, the moving average combination is too divergent, the mutual spacing is too large or the moving average becomes slower, and the spacing becomes smaller.

When investors mistakenly use false moving average combination buying and selling signals to guide trading, the result is also caught in a vicious circle of chasing up and selling down, "buying and losing money, selling and losing money".

Second, how to get out of the trading cycle of "buying and losing money, selling and losing money"

Using the moving average method to trade and get rid of the vicious circle of "buying and losing money, selling and losing money", the author believes that while solving psychological problems, the following technical problems need to be solved:

1. Pay attention to the effectiveness of moving average buying and selling signals

Study the specific theory and application characteristics of the moving average method carefully, and focus on the study of the effectiveness of correctly distinguishing various types of moving average buying and selling signals. Do not abuse information and trade blindly. Most investors who are initially involved in futures trading lack in-depth understanding of moving average analysis methods, are not good at distinguishing the authenticity of signals, and are prone to misuse information and blind trading mistakes. They should pay attention.

2. Correctly grasp the market environment for the application of moving average analysis methods

The moving average is an indicator that describes the price trend, using its effective moving average combination information to confirm the trend; conversely, it is generally suitable for market analysis situations with strong price trends.

The law of market price operation is: there is a trend (strong upward or downward) → no trend (cowhide finishing or adjustment period) → there is a trend → no trend... and so on. Therefore, investors can not always use the moving average analysis method everywhere in the trading process, but only use this method when the price is trending. Abuse the moving average analysis method in the non-trend stage of market prices will fall into the vicious circle of "buying and losing money, selling and losing money".

Investors should identify whether the target market is trending or untrending before executing a trade. If it is trending, use the moving average method, otherwise use other methods, such as swing indices.

3. Use in combination with other analytical methods

The moving average analysis method is just one of hundreds of market analysis methods. Its greatest advantage is that the calculation method is simple, popular, easy to use, and more effective, so it is loved and applied by the majority of investors. But it is not a universal tool, and has its own weaknesses. First, information lags; second, it is not suitable for trendless market use; third, information multi-resolution. The multi-resolution of information is actually a common phenomenon in market analysis, and it is a difficult point in the application of technical analysis methods. How to optimize the application of moving average analysis method? The author believes that it should not be used alone, but should be used in combination with other analysis methods. For example, the application of periodic analysis method and wave analysis method should be combined. The average combination that appears at the top of the price peak cycle or the fifth wave is generally invalid, while the short average combination is valid; the average combination that appears at the beginning of the price low cycle or the first wave is generally valid, while the short average combination is invalid.

4. Use in conjunction with a trading plan

Like other technical analysis methods, the moving average analysis method is essentially probabilistic analysis, and the price rise and fall information it gives is actually a probability of an event, not a certainty. In addition to some of the aforementioned application methods, it must be used in conjunction with the trading plan. In trading, if the market price development is consistent with the trader's analysis and execution, the trader will enjoy the benefits according to the plan; if the market price development is contrary to the trader's analysis and execution, the trader must timely admit mistakes and stop losses according to the plan.