The nature of trend, the relationship between trend and trading volume
Same goes for Bitcoin and stocks
Have you ever wondered why there are always price retracements during a trend?
Why are there waves?
How do I tell if this is a short-term retracement in the middle of a trend, or a trend reversal?
Most technical analysts only know how to look for patterns
Even Python is used to create computer self-learning to summarize the rules
But even if you really succeed in summarizing the rules
I just know it, but I don’t know why.
If you don’t even understand the underlying logic behind these phenomena,
How to make a profit?
First of all, we must start from the meaning of trading volume.
Why does a trend start?
Will there be a round of sideways trading with large volume first?
Or will there be several rounds of fluctuations before the main upward trend appears?
First, from the buyer's perspective:
Think about it first, why would you buy a stock?
When you buy a stock, you buy it because you think it will go up, right?
You will hold it in your hand before it goes up.
You will only sell it when it reaches your psychological price, right?
Now let’s look at it from a third party’s perspective.
If a person takes money to buy a stock
What does it mean?
It means that he has analyzed it in this way or that way.
Technical analysis is also good.
Whether it's based on fundamental analysis or just some insider information, he thinks the stock will go up, so he buys it, right?
What does it mean if there are still a large number of people (or Ponzi schemes) in the market who have the same idea as him?
We know that the share capital of a stock is limited. When most of the circulating shares are in the hands of these people, it means that most of these shares are "frozen" because they all want to wait for the price to rise before selling, so naturally there are not many sellers at this price. However, the buying orders can be unlimited, so it is easy for the price to rise.
Therefore, the higher the trading volume during the sideways trading process, the fewer sell orders there will be at this price, which will naturally make it easier for the price to rise.
However, the above only explains that it will rise, but how much will it rise? Why does the larger the trading volume, the greater the future increase?
It's a very simple truth. If there are only two stocks in the market for you to choose, how would you allocate your positions? You would definitely invest more in the stock you are most confident in, or the stock you think can rise to a higher price, right? Relatively speaking, you would invest less in the stock you have less confidence in, or even not invest in it, right?
Then let's look at it from a third party's perspective. When a person invests more money in a certain stock, what does it mean? It means that he thinks this stock will rise better than other stocks, and he will tend to wait until it rises to that higher price before selling it.
That means that if the trading volume of a stock is higher than that of other stocks, it means that holders are more inclined to wait for it to rise to a higher price before selling, which means that there are fewer potential selling orders above the current price.
The fewer potential selling orders above the current price, the smaller the pressure, and only a small amount of funds is needed to push the stock price to a high level. (Note that these funds are not necessarily from bankers or major players, but may just be a few more retail investors)
(In fact, the above is just for the convenience of understanding, so it is explained in a more popular way, but in fact the above argument is not rigorous. A more rigorous argument process will be released later. Understanding the argument process is the key to understanding the wave)
(But it should be noted that the volume increase mentioned here is not just looking at the volume column, but it should be combined with the price fluctuation range. Under the same range, the increase in volume is meaningful. Because large price fluctuations are definitely accompanied by high volume columns, although it looks like a large volume, the transactions that occur are distributed in a wider price range, and this kind of volume increase is not very meaningful. For example, the same stock rose by 10 yuan, and the trading volume during the period was 10,000 lots, and then it rose by 1 yuan, and the trading volume was only 2,000 lots. Which of the two is a large volume? Obviously the latter, because although 2,000 lots are not as many as the former 10,000 lots, it is distributed in the narrow range of 1 yuan.)
But in a transaction, there must be a buyer for every seller. The above discussion can also be applied to the seller. The reason why the shareholder sells is definitely because it is not worth the price.
Therefore, the very occurrence of the transaction proves that both the bulls and the bears do not agree with the current price.
That means that the larger the volume is during the sideways trading process, the more sparse the potential selling orders above the current price and the potential buying orders below the current price will become at the same time.
Therefore, sideways trading with large volume does not mean that there will be a sharp rise in the future, it is possible that there will be a sharp fall.
What is the significance of the increase in trading volume? We can use it to predict the amplitude, but we cannot predict the rise or fall. I can know that a stock is about to have a big market, but I don’t know whether it will rise or fall. But I can wait for the market to be confirmed before following it, or I can buy it now, and when it is confirmed that it is a bearish trend, I will immediately close the position and stop the loss.
Therefore, the entire trading system should be centered around stop loss. Even if my success rate is 50% or even lower, as long as I do it right once, I will hit the big market. If I make a mistake, as long as I stop loss in time, my loss every time I fail will be limited. In the long run, the profit will naturally be greater than the loss. The detailed plan for establishing a trading system will be discussed in other articles.
So the next key is how do I determine whether a trend is established? We need to start from the nature of the trend:
The above discussion is about the situation where the market has different opinions on a stock. Now let's change the perspective. If the market has no different opinions on a stock, what will happen?
The answer is that the trading volume is low and sideways. Because no one thinks it will rise, so no one buys it, and no one is sure it will fall, so no one sells it.
So how will the potential sell orders above the current price and the potential buy orders below the current price be distributed?
When the market as a whole has little disagreement on the stock price of a certain stock, for example, the current stock price of a certain stock is 10 yuan, and most people think that this stock is worth 10 yuan and will not rise or fall, then how will potential selling orders and potential buying orders be distributed?
The answer is that a large number of potential selling orders are closely attached to the price line above 10 yuan, and a large number of potential buying orders are closely attached to the price line below 10 yuan. Above and below 10 yuan are heavy pressure and support surfaces, tightly "sandwiching" 10 yuan. However, the transaction is sluggish.
Why? It's a simple logic. If you are 100% sure that the stock is worth 10 yuan and will not be less than 10 yuan, then if it starts to fall and drops to 9 yuan, will you definitely buy it? Because you are 100% sure that it will return to 10 yuan, so it's a waste not to make money. Similarly, if it suddenly rises to 11 yuan, you will definitely sell it because you think it is only worth 10 yuan.
Therefore, this is in stark contrast to the situation where the trading is active and the market is divided on this stock.
If we stop time and look at it from a bird's eye view, the potential selling orders above the current price are limited. Why? Because the equity is limited, and stockholders must have their own psychological price. So after exceeding a certain price, there is a vacuum zone above, without any selling orders.
At this point, some people may be confused. Aren’t there more people selling when the price is higher? Then why is there a vacuum zone?
Because we have stopped time, no matter what price the next holder will sell at after the turnover, before that, the potential selling orders of the original holder must be limited. The total selling volume is the total share capital of this stock. Even if someone wants to wait until the price rises to 100,000 yuan before selling, the selling volume is still limited. From a God's perspective, there must be a vacuum zone above a certain price.
Let's take a look at the distribution of potential buying orders below 10 yuan. Theoretically, the potential buying volume can be infinite, but this is only theoretical, because market funds are limited and distributed across thousands of A-shares, so at this static moment, the buying volume below is also limited.
Moreover, if the market's recognition of the stock's value of 10 yuan is higher and the differences are smaller, then the concentration of potential selling orders above 10 yuan and potential buying orders below 10 yuan will be higher, and the closer they are to 10 yuan, the higher the density will be, which means that the pressure on the pressure surface and the support surface will be greater, tightly clamping the price line of 10 yuan.
If you want to push up this stock at this time, the amount of funds required will be very large, because it has to absorb all the selling orders just above 10 yuan before it can go up.
Then we push time forward. If the market starts to have disagreements about this stock, and the trading volume becomes higher and higher and accumulates more and more, we assume that it remains sideways.
The occurrence of sideways trading must mean that the old potential selling orders above the price will decrease, that is, those who originally wanted to sell at more than 10 yuan could not help but sell at 10 yuan. The same logic must also mean that the old potential buying orders below the price will decrease.
As argued earlier, the new buyer must think that the price will rise, so he buys it. Therefore, the new potential selling order must be far above 10 yuan (as for how far, there will be a rigorous argumentation process later).
As the sideways trading volume continues to accumulate, the old potential selling orders close to above 10 yuan will eventually disappear, and will be replaced by new potential selling orders far away from above 10 yuan.
By the same token, all the old potential buying orders just below 10 yuan will disappear, and will be replaced by new potential buying orders far away from below 10 yuan.
So from God's perspective, you will see this scene:
The original pressure surface and support surface have swapped positions with the vacuum belt. The vacuum belt is now close to the 10 yuan price line, while the pressure surface and support surface are far away from 10 yuan. (First of all, the vacuum belt at this time is not an absolute vacuum, but the potential selling and buying orders are relatively sparse)
At this time, only a small amount of funds is needed to create price fluctuations (not necessarily caused by the banker, perhaps just a few more retail investors)