Cognition Series - Cryptocurrency Exchange Platform

Cognitive Series - Cryptocurrency Exchange Platform

Trading Cognition Series — Trading is an Art

Trading is an art, not a science, mainly reflected in the following aspects.

1. No two forms are exactly the same; they are constantly changing.

2. Resistance zones are fuzzy areas that cannot be pinpointed precisely.

3. Trends do not always follow the same pattern.

4. The actual opening price always differs from the planned opening price.

Therefore, there are two types of people who are not suitable for trading: one is those who pursue perfection, and the other is those who seek excellence.

Capital Market Cognition Series — Embracing All Possibilities

The uncertainty of the capital market determines that anything can happen. This is an unchangeable logic, independent of human will. Whether you believe it or not, what has not happened before will happen in the future; what you haven’t seen does not mean it hasn’t occurred. To succeed in trading, one must be mentally prepared. Everything is possible in the market. Only by truly accepting this view can you remain unphased, adapt to the market’s constant changes, and avoid being overwhelmed by market fluctuations. This enables objective, calm, and rational decision-making.

Human Nature Cognition Series — Understanding Perspectives

In trading, we are inevitably influenced by others’ opinions, as the environment of the capital market is filled with various viewpoints. Both bullish and bearish sides have their reasons and are confident in their perspectives. To trade well, we must address some issues related to viewpoints.

1. We trade signals, not opinions. Turning opinions into signals involves practical implementation issues. For example, if someone says the market will rise tomorrow, which sector will rise? Which stock will go up? How to handle gap openings? How to deal with limit-ups? Many questions like these cannot be answered solely based on an opinion.

2. Others’ opinions can be referenced but should not be the basis for decision-making. We should not blame others for failures after listening to their opinions; self-deception is not acceptable.

3. Opinions are subjective views, often far from the market’s objective trend. All opinions require market validation. Do not blindly believe others’ viewpoints.

4. Do not assume an opinion is correct just because it has been correct a few times. The market’s randomness means no one can predict tomorrow’s trend accurately. However, it also shows that anyone can be right sometimes. With three people guessing different directions, one might guess correctly—this is not divine power but a matter of probability advantage. Our focus should be on whether the logic behind the opinion is valid.

Trading Cognition Series — What is Trading Certainty

Market cognition tells us that the market is uncertain; everything is unpredictable. The constant change in the capital market requires us to respond flexibly. Besides adaptability, we must find certainty within trading to cope.

1. Logic: Doing the right thing is doing what is controllable; controllable actions are those we can be certain about.

2. Certainties:

   1. Developing a trading plan
   2. Setting automatic stop-loss, take-profit, and opening orders in advance
   3. Following rules for opening, stop-loss, and take-profit
   4. Adhering to trading principles
   5. Maintaining trading discipline
   6. Trading breakouts, not lurking
   7. Acting solely based on signals
   8. Following the trend
   9. Avoiding gambling on market movements
   10. Avoiding emotional trading

If we can consistently do these certain actions, we can handle any market changes with ease.

Technical Analysis Series — Understanding Technical Analysis

Technical analysis methods are ancient and proven to be successful through history. Many trading masters have achieved brilliance using technical analysis. However, true technical analysis is not just subjective trading or drawing lines, as some may think. The importance of technical analysis in speculative trading accounts for only about 30%; the remaining 70% depends on mindset, philosophy, and ideas, with luck accounting for about 10%. Technical analysis is merely a tool, like valuation standards in value investing—just a ruler. High technical analysis skill alone does not guarantee profits.

1. Technical analysis is always a static analysis of historical data, not future markets. We trade the future, not the past. Therefore, even the most accurate analysis of history is only historical; combining historical data analysis with future market trends is essential for correct trading.

2. The role of technical analysis: It is not for prediction but for inferring tomorrow’s trend based on past experience. It is probabilistic, not causal thinking. It helps you respond to market changes, not predict the exact movement. The market ultimately decides the direction. Therefore, technical analysis cannot solve precise entry and exit timing.

3. Technical analysis must align with actual market trends. When your analysis contradicts the market, adjust your analysis rather than assume the market is wrong. Many traders believe the market is always right; if prices fall, they think they underestimated; if prices rise, they think they overestimated. Only by accepting the gap between analysis and market can we adjust promptly.

4. Technical analysis reflects a mindset. Without a mindset, technical analysis is like a castle in the air. Ultimately, it is about principles and rules, not techniques.

5. Technical analysis is suitable for general retail traders. It can compensate for weaknesses in information, fundamentals, and capital.

6. While not the key to profitability, all our decisions are based on market analysis.

Pattern Series — How Do Patterns Evolve

In previous discussions on pattern cognition, it was mentioned that patterns are not fixed; they themselves are constantly evolving, as are the relationships between different patterns. Below is a brief overview of various evolution forms. Specific applications will be explored in future theory and practice.

1. Evolution of Top Patterns:

   1. Double Top — Three Respects
   2. Head and Shoulders Top — Complex Top

2. Evolution of Bottom Patterns: Similar to top pattern evolution.

3. Evolution of Continuation Patterns:

   1. Rising Wedge — Arc Bottom — Cup with Handle
   2. Small Pattern — Large Pattern: Small Box — Large Box — Symmetrical Triangles — Large Symmetrical Triangles
   3. Parabolic Pits — Cup with Handle
   4. Cup with Handle — Rhombus
   5. Expanding Triangle — Rhombus
   6. Box — Expanding Triangle
   7. Box — Trend Channel
   8. Small Triangle — Rising Wedge
   9. Horizontal — Upward Tilted
   10. Converging — Flag Pattern
   11. Inverted V — Right-extended V
   12. Symmetrical Triangle — Left-extended V

4. Reversal and Continuation Pattern Evolution:

   1. Continuation patterns evolve into bottom patterns.
   2. Continuation patterns evolve into top patterns.
   3. Bottom patterns evolve into continuation patterns.
   4. Top patterns evolve into continuation patterns.

Pattern Series — Understanding Patterns

1. Pattern analysis is one of the three elements of technical analysis; patterns solve the problem of entry.

2. Patterns are not fixed. Although many specific patterns are listed in morphology, in actual analysis, it is almost impossible to find two identical patterns. All standard pattern charts are manually drawn, representing descriptions and indications of a pattern, mainly for learning purposes. Viewing patterns with an artistic eye is more practical; as ancient saying goes: “Clouds in the sky resemble white robes, changing swiftly like a blue dog.”

3. Patterns cannot be quantified. To date, there is no mature pattern recognition software on the market. Pattern recognition is a unique ability of manual traders and cannot be replaced by computers.

4. Patterns are not predetermined; they are formed by market movements.

5. The specific form of a pattern is not important; what matters is the moment of breaking the neckline. That is the key point to focus on. Therefore, do not follow patterns mechanically or seek identical standard patterns. Different people may draw different patterns.

6. Patterns are constantly evolving.

7. The essence of patterns is the result of a battle between bulls and bears, a process of accumulating strength. It is like a tug-of-war, fiercely contesting for a position. When one side wins completely, the other side is defeated and exits the battlefield. The pattern is then successfully broken through.

Risk Control Series — Understanding Your Risk Preference

Knowing your risk preference is essential in trading. Are you risk-averse or risk-seeking? Is your risk preference high or low? Use these standards to determine which investment markets suit you. If you are risk-averse, savings, government bonds, and insurance are more suitable. If risk-seeking, stocks, futures, forex, and index options are appropriate. Those with high risk preference can engage in futures, forex, and high-leverage products. Those with low risk preference can focus on funds and stocks.

Risk Control Series — What is Margin of Safety

In trading, we often consider the concept of margin of safety. Different sources have various explanations. Graham proposed that “the margin of safety always depends on the price paid.” The lower the price, the higher the safety margin; the higher the price, the lower the safety margin. In business operations, the difference between current or expected sales volume and the breakeven point provides a risk buffer, serving as a safety margin. For speculative trading, the safety margin mainly refers to the space between your opening price and support/resistance levels. For example, if I buy an asset at 5 yuan, and there is a clear resistance at around 10 yuan, this is my safety margin because it is relatively safe before reaching 10 yuan. As it approaches or reaches 10 yuan, selling pressure will emerge. Based on this concept, when analyzing an asset, consider the width of the “river” (price range). Without sufficient “river width,” you should not open a position.

Risk Control Series — What is Risk Exposure

Risk exposure refers to the portion of assets exposed to risk without protective measures. For example, a long position exposes you to risk if the market declines; if you do not want to sell your stocks, you need to hedge by buying index futures short positions. Failing to hedge creates risk exposure. All risk exposures should be closed promptly; violating this rule can lead to uncontrolled trading. This is the real risk. Risk exposure involves many aspects, such as overnight risk, rollover risk, holiday risk, T+1 trading system risk, black swan events, rapid market movements, and emergencies. All require timely closing of risk exposure, as it directly affects your profitability or losses.

Risk Control Series — How to Prevent Trading from Going Out of Control

Controlling risk is paramount. The key to trading is managing risk well. Out-of-control trading mainly refers to uncontrolled losses.

1. Main causes of out-of-control trading:

   1. Not setting stop-loss
   2. Not setting automatic stop-loss orders when away from the computer
   3. Not closing risk exposures
   4. Frequent trading caused by emotional instability
   5. System failures due to network issues

2. Consequences: Major losses

3. Solutions: Address each cause individually to resolve the issues.