1. The Boundary Between Investment and Speculation
Fellow cryptocurrency enthusiasts might want to ponder: We often speak of 'speculation,' not the 'investment' that the public refers to; what exactly is the difference between the two?
In (Foreigners' Economics), it is clearly defined: 'Investment' refers to long-term holding for dividend returns, while 'speculation' involves earning price differences through short-term low buying and high selling, or high selling and low buying. So if you want to invest in blockchain, you can choose promising projects and hand your funds to the project parties, and thereafter you can only observe the changes, with rises and falls determined by the market; but if you are trading cryptocurrencies, you must be clear about this — we are speculating, and the quality of the project itself is not the core focus.
2. How to Understand Market Trends
Since we are trading cryptocurrencies, the core is to see price fluctuations clearly and capture trading opportunities. There are numerous speculative technical books available, where should one start? (Friends with experience in the stock market, futures, forex, or postal currency can skip the following content.)
All trading techniques ultimately rely on four elements: price, trading volume, time, and news. Behind all of this, there is only one core — 'human nature.' Detailed analyses of related techniques are available on Baidu; interested cryptocurrency friends can search for the following keywords to learn more:
(1) K-line
The upper and lower edges of the body correspond to the opening and closing prices, which are the prices of the first and last trades within a certain time period (for example, a daily line reflects the first and last trade prices of the day). The top of the thin line above the body represents the highest transaction price during that time period, while the bottom of the thin line below, as you might guess, is the lowest transaction price.
It is important to note that most domestic market software uses green to indicate a decline and red to indicate an increase (aligning with the Chinese people's festive association with red); however, the foundational code of the virtual currency market often originates from abroad, where red represents risk and is commonly used to indicate a decline. Therefore, one must pay attention to the inverse nature of price displays when observing the market.
Arranging candlestick charts along the timeline forms K-lines, which can visually present price changes over different time periods.
(2) Trading Volume
The red and green bars at the bottom of the trading interface, resembling a fence, represent trading volume, reflecting the total trading volume over a certain time period (for example, the total amount of coins sold by Old Wang to Old Li and bought by Zhang San from Li Si). The taller the bar, the more active the trading in that period.
(3) Moving Averages
The full name is the moving average, calculated by adding the closing prices of several candlesticks and taking the average, then connecting these averages. The 'several' can be set to multiple values, commonly 5, 10, 20, 30, 60 cycles, which looks colorful and appears professional. Technical analysis theory holds that when the short-term moving average crosses above the long-term moving average, the trend is upward; conversely, the trend is downward. This forms the basis of technical analysis strategies, and almost all technical analysis methods evolve from this, with experts in the stock and futures markets trading reliably based on a single moving average.
(4) MACD
This is a widely used and somewhat professional indicator, scientifically known as the Exponential Moving Average (EMA), which can be found in most trading platforms' market software. Its algorithm is relatively complex, and interested friends can research the principles on Baidu. The most basic usage is similar to moving averages: when the short-term moving average crosses above the long-term moving average, it is seen as a signal to buy, and vice versa for a sell signal. More advanced uses involve 'top divergence' and 'bottom divergence' — when the price trend is downward and the MACD is upward, it may form a bottom; when the price trend is upward but the MACD has turned downward, it may form a top. Historical data shows that 'top divergence' and 'bottom divergence' have a high hit rate, but this indicator performs poorly in volatile markets.
Going deeper, there are many tools such as the KDJ stochastic indicator, ASI indicator, Bollinger Bands (BOLL), BRAR indicator, W&R indicator, etc. With the development of computer technology, quantitative trading and programmatic trading have emerged, which automatically calculate indicators and execute trades via programs. In recent years, there have even been techniques using unsupervised learning with artificial intelligence to analyze market trends.
The desires of human nature drive technical analysts to continuously seek the 'Holy Grail' within indicators, longing to find a universal tool applicable everywhere, much like searching for a money tree.
I have also been deeply involved, not only analyzing the design logic behind each indicator but also designing a large number of programmatic trading indicators for live trading, yet always with minimal results. Some codes with a backtesting hit rate of 90% show significant effects in the short term but perform poorly after a while; conversely, some simple indicators, despite a testing success rate of only around 60%, can adapt to most market conditions.
Former Goldman Sachs quantitative trader Aleinikov revealed after his arrest that his job was merely to maintain a 6 million line long quantitative trading code, which contained countless different models and indicators, but the actual market results fell far short of initial expectations.
It took me a long time to understand the reason behind this. (Tao Te Ching) states: 'The way that can be told is not the eternal way; the name that can be named is not the eternal name; the nameless is the beginning of heaven and earth; the named is the mother of all things.' The foundation of all technical analysis indicators is mathematics, and mathematics is a tool that humanity uses to measure the world. However, when faced with 'human nature,' a variable that cannot be precisely measured, any mathematical formula can only approach the truth infinitely but can never be perfectly described. Because of this, when human nature influences the market, even the best indicators are difficult to avoid distortion.
But this does not mean we should abandon technical analysis. It can provide a good reference for speculation. The set of basic technical analysis indicators I currently use is one I designed myself.
Since technical analysis cannot guarantee success every time, why still use it? The answer to this part is the core of technical analysis theory.
I am Old Yang, focused on market analysis and practical teaching, hoping to become your good teacher and friend on the investment journey. As an analyst, my core mission is to help everyone profit. If you are feeling confused or encountering positions that are losing, feel free to follow me — let my strength guide you.
