I. Trend system
Trend tracking trading system is the most popular and popular trading system type before high-frequency trading exposure. The earliest trend-following trading strategy was formed in the early 20th century, which mainly used the moving average to buy, hold and sell. Later, due to the computer-generated opening and closing signals, today's trend tracking system is more perfect and mature. However, no matter how modern, the trend tracking system will fail in some market situations.
The assumption that the trend tracking system is profitable is that the stock or futures market is forming a strong upward or downward trend. Generally speaking, we think that a strong upward or downward trend means that the price runs along the upward or downward channel with an angle greater than 35 degrees, and the retracement is small. For example, in the upward trend, the adjustment range is small and the profit liquidation is not obvious.
According to historical data, the market is in a trend market for 30%-35% of the time. In the trend market, there are usually some factors that make investors more greedy (in the upward trend) or more afraid (in the downward trend). These extreme emotions and behaviors of investors often lead to rapid changes in market prices. The trend tracking system makes use of this advantage, and can often get rich profits in a short time.
In order to grasp the general trend of the market, trading researchers have developed a corresponding trend tracking system. These trend tracking systems are very popular with traders, because every trader wants to make money simply and quickly. So what are the disadvantages of trend trading? As a trend trader, you need to trade in a market with a strong trend or a speculative market with a certain speed. An oscillating market or a market without a trend will be a nightmare for these traders.
Trend system mainly includes swing system, intraday trading system, kinetic energy system or other fast-paced trading systems. Stop loss is often accompanied by various trend trading systems, because the concept of trend trading system is to constantly lose small money to capture several opportunities to win big money. Therefore, as a trend trading investor, you must be able to bear these risks and have enough funds to offset these trading losses.
As mentioned above, the biggest constraint of the trend trading system is that it can only be used when the market has a trend, although the market is only in a trend state about 30% of the time. If traders try to apply the trend system to the rapidly oscillating market, they will keep losing money until they quit. Assuming that traders can't realize whether the market is suitable for trend trading, they will lose a lot of money and time.
Second, the contrarian system.
Contrarian trading system is a system that trades against the mainstream trend and long-term trend of the market. It is generally believed that the best way to judge the mainstream trend is to use the weekly K-line instead of the daily K-line. Going against the trend, as the name implies, is a strategy in the opposite direction. The contrarian system has existed for decades, but it has not been welcomed by small and medium-sized investors, and its neglect is caused by the nature of investors.
Contrarian trading is trading against the mainstream trend in a short period of time or in the middle period. In essence, it is to hold the opposite position when the market is oversold or overbought.
As a contrarian trader, you usually need to have long-term rich market experience. Generally speaking, oscillating traders, day traders and short-term traders are the main body of contrarian trading. The key to the success of contrarian trading lies in contrarian index, special K-line chart and enough trading experience. Contrarian traders usually make predictions before the trend changes.
Compared with trend trading system or breakthrough trading system, contrarian trading system is a kind of reverse trading, so it is usually accompanied by greater trading risk. Therefore, as a contrarian trader, you must have a good stop-loss quality or stop-loss strategy. This is because the mainstream trend is often unstoppable, while the contrarian trading opportunity is fleeting, with a more serious speculative tendency, and it is very likely that there will be a continuous direction error. Statistics show that the contrarian trading system is effective in 20% cases.
Third, break through the trading system (break through the system)
In 1950s, the breakthrough trading system first appeared in the market, and the market situation was the same as this time. The stock market crash of 1929 just passed, and the stock market was extremely weak due to World War II. Unlike the speculative stock market in the United States 1990, the stock market from 1950 to 1960 is more inclined to invest in the value of the stock itself. Breaking through the system was almost the best strategy under the market conditions at that time.
Breakthrough trading system is suitable for the situation that the price suddenly rises (or falls, but the upward breakthrough trading system is more widely used) after the market establishes an adjustment platform without any warning.
When the speculative atmosphere is not strong, the market often builds a platform or box based on its own intrinsic value. After that, traders, especially large ones, will grab a lot of chips according to the sudden change of fundamentals, which will make the price suddenly rise and accelerate the rise.
The advantage of breakthrough trading system over trend trading system is that it can be applied to markets without trend or violent oscillation. As a user who breaks through the trading system, it is particularly critical to understand the gap and know its impact. Gap gap is often the beginning of breaking through the huge profits of trading system.
So what is the defect of breaking through the trading system? This system is different from the trend tracking system, and its performance is not satisfactory in the market with strong trend. Because in the strong trend market, there is no obvious box shape.
According to the characteristics of trend-free market or box market, we usually set the stop loss point above the box (if it breaks up). Compared with the trend tracking system, this setting has better support. The trend tracking system is likely to have continuous errors, which is rare in breakthrough systems. According to statistics, breaking through the trading system is effective 40%-50% of the time.
Fourthly, the Trading Range Systems.
The price range trading system is a trading system developed in the second half of the 20th century, when the market fluctuated greatly. This trading system is one of the most popular systems in the US stock market from 1970 to 1980.
The market suitable for the price range system usually appears in the period of economic stagnation. Historically, the general market will enter a price range after the crash, when the market is in the economic transition period.
The price range market is different from the trend free market, and the market in this state fluctuates greatly, with obvious minimum and maximum values. So it is neither suitable for trend following nor for breaking through the system. It is generally believed that the minimum fluctuation range can not be called price range until 10%.
The price range system uses the characteristics of band cycle within the price range: holding a position to the highest price triggers, and then waiting for the stock price to fall. Price range system traders buy when prices rise and sell when prices fall. When the market is in the price range, this is a perfect profit model, which can bring rich profits to experienced investors.
The limitations of the price range system are as follows: first, unless it is in a special economic period, the market is usually not in the price fluctuation range; Secondly, the price fluctuation range will not always be accurate. Maybe this high point is higher or lower than the last one. Price range traders always assume that the price trend will repeat the trend of the previous band, so this type of trader needs a lot of market experience. Statistics show that the price range system is effective in 20%-25% of the time.
Verb (abbreviation for verb) hedging system
The maturity and popularity of hedging system is due to the participation of institutional traders at the end of the 20th century. Because of the huge amount of funds of institutional traders, unilateral speculation is risky, so the combination of multiple stocks and commodities has become one of the best means for them to avoid risks.
Traders in the hedging system will sell another commodity or stock index after buying one commodity or stock to avoid the risk of unilateral position. For example, in the futures market, traders will buy livestock and sell corn; In the foreign exchange market, traders will buy one currency and sell another; In the stock market, traders buy stocks and sell stock indexes.
Compared with the above four trading systems, the hedging system is more complicated and needs more professional knowledge and skills. The background knowledge of traders is not limited to the stock information of trading, but also needs to know the related commodities, currency trends, options, etc., so the hedging system is not suitable for primary traders.
Professional traders use hedging systems to solve different cyclical positions, such as short-term and medium-term situations. However, primary traders often do the opposite, just using the hedging system to control their own losses, and even expand their losses-this is also the defect of the hedging system. For investors without professional education background and market knowledge, the hedging system will only increase their losses and bring them more harm.
Trading systems have developed for nearly a century, and each trading system has experienced ups and downs according to different market conditions. In the future market development, different trading systems will have different evolution, and even emerging systems such as high-frequency trading will appear. Only by fully understanding how the system works, how to develop and when to use, can we choose a trading system that is suitable for the current market situation wisely.