Futures investment skills

(7) . Viewing the potential of graph theory

① Price type

To study the brewing period and its predictive significance is the problem that the price pattern should solve. So, what is the price pattern? Price patterns are specific patterns or patterns on the price chart of stocks or futures. They have predictive value, and we can classify them.

② , forms have two categories: reverse type and continuous type

There are two main categories of price patterns - reversal pattern and sustained pattern. The reversal pattern is worthy of the name, which means that the trend is undergoing an important reversal; On the contrary, the continuous pattern shows that the market is likely to take a temporary break to adjust the recent overbought or oversold situation. After that, the existing trend will continue to develop. The key is to identify its type as early as possible in the process of morphological formation.

Trading volume plays an important role in verifying all price forms. When the situation is unclear, it is a decisive way to judge whether the current price pattern is reliable to study the trading volume pattern associated with the price data. Most price forms have their own specific measurement techniques, which can determine the minimum price target. Although these goals are only a rough estimate of the next market movement, they are still helpful for investors to determine their reward risk ratio.

③ Continuous form

Persistent forms, including triangles, flags and pennants, wedges, and rectangles. This type of pattern usually reflects that the emerging trend is in a state of rest rather than a reversal of the trend. Therefore, it is generally classified as a medium or secondary pattern, not a major pattern.

④ , Reverse configuration

Inversion forms include one-day (two-day) inversion, compound head shoulder type, triple top (bottom), double top (bottom), head shoulder bottom, head shoulder top and round top. This type of pattern usually indicates the end of the old trend and the formation of a new trend. For trend traders, it is very important to identify reversal patterns. Once the reverse form occurs, trend traders should immediately make the decision of reverse trading.

⑤ Basic elements common to inversion form

1. Necessity of pre-existing trends

The existence of trends in the market is a prerequisite for the existence of all reversal patterns. The market must have a clear trend before it can talk about a reversal. Occasionally, some graphs similar to the reverse form appear on the chart. However, if there is no trend in advance, then it has nothing to reverse, so its meaning is limited. In the process of identifying patterns, it is the key to success to correctly grasp the overall structure of the trend and raise vigilance for the stage where a certain pattern is most likely to occur. It is precisely because the reverse form must have a trend that can be reversed in advance, so it has the meaning of measurement. Most measurement techniques only give the minimum price target. So, what is the maximum target of inversion? It is the starting point of the ex ante trend, and its end point is to return to its starting point. If a major bull market has occurred in the market and the major reversal pattern has been completed, it indicates that the maximum room for downward price movement is 100% withdrawal of the entire bull market.

2. Breakthrough of important trend lines

The coming reversal process is often preceded by breaking through important trend lines. But please remember, friends, a breakthrough in the main trend line does not necessarily mean a reversal of the trend. The signal itself means that the original trend is changing. After the main upward trend line is broken, it may indicate that the price pattern of horizontal extension begins to appear. Later, with the further development of the situation, we can recognize this pattern as reverse or continuous. In some cases, the main trend line is broken and the completion of the price pattern is just synchronized.

3. The larger the size of the form, the larger the subsequent market action

The so-called scale here refers to the height and width of the price pattern. Height indicates the fluctuation of the form, while width indicates the amount of time it takes for the form to develop and complete. The larger the scale of the form -- that is, the larger the range (height) of the price swing within the form, and the longer the duration (width) -- the more important the form is, and the more room for the subsequent price movement.

4. Difference between top and bottom

The top form has a shorter duration but stronger volatility than the bottom form. In the top form, the price fluctuation is not only greater, but also more intense, and its formation time is also shorter. The bottom form usually has a small price fluctuation range, but it takes a long time. Because of this, it is usually easier to identify and capture the bottom of the market than the top. The losses are correspondingly less. However, for those who like "topping", there is still some consolation, that is, prices tend to fall fast and rise slowly, so although the top shape is difficult to deal with, it has its own attractions. Generally, investors can make profits much faster when they catch the selling opportunity in a bear market than when they catch the buying opportunity in a bull market. In fact, everything is a balance between risk and return. Higher risks are compensated by higher returns, and vice versa. Although the top form is difficult to capture, it also has more profit potential.

5. Trading volume is more important when verifying the upward breakthrough signal

The trading volume should generally increase in the direction of the market trend, which is an important clue to verify the completion of all price patterns. The completion of any form should be accompanied by a significant increase in transaction volume. However, volume is not so important early in the reversal process at the top of the trend. Once the bear market sneaks in, the market is accustomed to "falling due to self weight". Of course, chart analysts would like to see that while prices are falling, trading activities are also more active. However, this is not the key in the process of top reversal. However, in the process of bottom reversal, the corresponding expansion of trading volume is absolutely necessary. If the trading volume pattern does not show a significant growth trend when the price breaks through upward, then the reliability of the entire price pattern is questionable.