Read (Soros) | The first principle of traders: follow the trend.
I have a deep understanding that when the price of a currency rises, N reasons are needed, and stories need to be told constantly, using a nearly deceptive method to lure people into cooperating in pulling up the price.
When the price of a currency falls, there is no need for any reason, it is just because the price is too high.
Combining the concepts in this article with my personal understanding of cryptocurrency trading, I would like to share with you that the first principle for traders is to see the big trend clearly. A first-class trader should be ahead of the trend. The ideal state is, "I predict your prediction."
1️⃣What exactly is a trend?
- Some define trends using Dow Theory, where progressively higher highs and lows constitute an uptrend.
- Some define trends using trend lines, where not breaking the trend line constitutes a trend.
- Some define trends using moving averages, where not breaking the moving average constitutes a trend.
- Some define trends through breakouts, where breaking out of a consolidation zone constitutes a trend.
- Some define trends using fundamentals, where significant fundamental changes constitute a trend.
……
The answers above are all correct, but it still feels a bit lacking. If I were to answer, I might say:
The trend is a consensus of the masses.
Although it's very abstract, it may be closer to the original meaning of the trend.
Because in form, it can change in countless ways, any concrete description may be like a blind person touching an elephant.
Trends form in the market because of the similarity in traders' views, and opportunities exist due to the diversity of traders' views.
The trend you see may be a consolidation in someone else's eyes, and the trend you think is following may be seen as counter-trend by others. But there are always a few points that most people agree upon.
Why should we follow the trend?
Experts all say to follow the trend, which feels like correct but meaningless advice.
When you don't enter the market, the trend continues; as soon as you enter, the trend reverses. It feels like the market is working against you.
Many people actually like consolidation because buying high and selling low aligns more with human nature, making you feel that if you make a mistake, you are the one at fault.
Subconsciously, we do not want to explore the truth; we just want to avoid making ourselves feel too awkward.
Following the trend is a form of leveraging.
Following the trend is a direction.
Trend, to put it figuratively, is like a gust of wind. Running with the wind is easy, against the wind is hard; that's all there is to it.
This is a game without supervision; you can rely on the wind direction or not rely on it, but in the end, it only matters what the results are.
When you are running against the wind, trying to show your strength, others may have already run to the finish line with the wind.
The trend is like a tool in a game; whether to use it is up to you, and in the end, it all depends on the result.
Following the trend is destined to be in one direction. Perhaps our judgment of the direction is not necessarily correct, but even if it is wrong, it is better than having no direction at all. Just like MicroStrategy purchased 439,000 bitcoins, even buying at prices above 100,000, can this be considered following the trend?
Decision-making should be simple and efficient. Doing one direction is simpler and more effective than trying to be long for a while and short for a while.
What are the advantages of the big trend over the small trend?
Different cycles will have different trends.
From a technical analysis perspective, trends do not choose cycles; any cycle can produce trends.
On a larger scale, monthly charts have trends; on a smaller scale, even a minute can have trends.
Compared to small trends, the biggest advantage of big trends is the ability to carry larger funds.
A one-minute trend can only carry one-minute funds, while daily and weekly trends can carry massive funds.
The more funds the trend carries, the longer it lasts, and the better the profit effect of the trend.
The larger the funds, the longer the entry time is required, which is also the fundamental reason why large funds pay more attention to higher-level trends.
The advantage of a big trend is its strong capacity and higher stability, but its biggest disadvantage is that there are fewer opportunities.
If small fund traders are expecting weekly-level trends every day, there may not be many opportunities in a year, so choosing a too high level may not necessarily be an advantage.
The big ship can only sail on the sea, while you are a small boat that can navigate on a small river. This actually gives you an additional choice.
What stages does a trend have?
This answer varies from person to person.
In my opinion, it can be simply divided into three stages:
Accumulation phase, breakout phase, recession phase.
The accumulation phase is characterized by the public not seeing clearly and uncertainty about a big rise; only the perceptive ones will lay out their plans.
The breakout phase is characterized by being on major financial news, with the public discussing it widely, wanting to buy but not daring to do so.
The recession phase is characterized by increasing volatility and greater operational difficulty, but it does not mean the trend has ended.
Retail investors generally look down on the accumulation phase, hesitate during the breakout phase, and strike hard during the recession phase. Due to extreme volatility, they often get shaken out of the market, and after the price fluctuates, it continues to rise, leading them to regret their decisions.
What risks are there in trend trading?
Trading trends does not mean you will definitely make money; following the trend also carries two risks.
1: Catching the last part of the trend.
2: Seeing the right direction but entering the wrong position.
In the first scenario, the trend is very obvious, but after you enter, the trend ends, and it either consolidates or reverses. This is a common situation in trend trading.
So the difficulty lies in confirming that it is a trend while not letting yourself be the last one to enter. This timing needs to be grasped well; too early, it’s not a trend; too late, it’s a loss.
In the second scenario, the trend was also correctly identified, but when playing contracts, if your buying or stop-loss strategy is wrong and you get swept out of the market, the price continues to run in the original trend afterward. This is even more frustrating.
Did you see the right direction? If you saw it, did you act? If you acted, did you make money? Lost money!
Trading trends seems very simple, but solving these two problems well is not simple.
Some insights about trends, hoping to inspire you, let's strive together!