- Determine the bottom and top of the market according to the exchange rate
Judging the top and bottom of the exchange rate from the second high (low) point The difficulty is that sometimes the exchange rate is really at the top (bottom), and we don’t know it ourselves. And sometimes we think the market has reached the top, but driven by a lot of buying, the exchange rate has made new highs. This situation is very easy to occur in a big bull market, which is also an important reason why some technical people are often not optimistic when the exchange rate is rising. In fact, the rise and fall of the exchange rate are closely related to the strength of buyers and sellers, and the formation of tops and bottoms is often the moment when the two powers show a major turning point.
Although our judgment on the first peak is that we are in Lushan Mountain and do not know its true colors, we can compare the second peak with the first peak. If the second top is lower than the first, it means that the buyer’s strength is exhausted and cannot push the exchange rate above the previous high. So in this position, it is very easy to turn the situation. The conversion of the two forces of buying and selling results in the strength of the seller being stronger than that of the buyer, and the funds that were originally long may also change their strategy and join the ranks of short sellers. As a result, the exchange rate fell sharply, and the top was formed.
- Use the wave theory to determine the bottom and top of the market
Using the wave theory to determine the bottom and top of the market is also a very good method. The Elliott wave theory must be familiar to everyone. Its basic idea is that when the market rises, it generally appears in the form of five waves rising. Waves 1, 3, and 5 rise, and waves 2 and 4 adjust. When the market declines, it is generally completed with a 3-wave decline. Wave A falls, wave B rebounds, and wave C falls.
Once the rising market has unfolded, we can use the wave theory to count the waves. Based on the height and width between waves, the positions of the tops and bottoms can be predicted in advance. According to the judgment of the top and bottom, we can carry out corresponding operations to achieve the purpose of avoiding risks and obtaining profits.
The advantage of the wave theory is that it is more intuitive. Through quantification, the position of the top or bottom can be calculated. Moreover, the main points of the wave theory are relatively easy to grasp, and everyone is relatively easy to accept.
But the shortcomings of the wave theory are also obvious. First of all, the wave theory believes that the rise of the market is in the form of 5 waves, which itself is a subjective judgment and lacks a solid and effective theoretical basis. Sometimes the development of the market does not completely follow the wave theory. This causes some errors in our judgment. The reason is very simple. If all market conditions can be accurately grasped by counting waves, everyone in this market can make money, so who else loses? From the principle that the foreign exchange market is a zero-sum game, some people If you make a profit, someone will lose, and if someone loses, someone will make a profit. Otherwise, the market will not be able to run.
Secondly, the wave theory seems to be simple, but it is very complicated if you really count the waves. Often there are small waves within the big waves, and they are linked to each other to form a chain. The end result is that we ourselves are dizzy. The last point is that the wave theory is relatively accurate in long-period technical graphics, and the accuracy rate is relatively low in short-period technical graphics, so it is basically meaningless to count waves on the time-sharing chart.
In fact, any theory has its own flaws and deficiencies, and there is no perfect theory in any field. What’s more, in the foreign exchange market, which is full of speculative atmosphere and complicated market, so far there is no theory that can fully explain everything that happens in the market.
Although the wave theory has its shortcomings, it does not prevent us from using the wave theory to judge the top and bottom of the market. After all, the wave theory gives us a reference basis, which greatly improves the probability of us grasping the top and bottom. We should thank Master Eliot for the great legacy he left us.
- Use indicators to determine the top and bottom of the market
Using indicators to determine tops and bottoms is a method we often use and work well. We can use commonly used indicators to make an objective judgment on tops and bottoms.
Among technical indicators, RSI (Relative Strength Indicator) is a more commonly used indicator for judging tops and bottoms. The relative strength indicator RSI (RelativeStrengthI- index) is a common technical indicator with the same name as the KD indicator. RSI predicts the future direction of price changes from the price changes in a specific period, and shows the strength of the market according to the price fluctuations. The indicator is more accurate in judging the bottom and the top.
A common situation is that when the exchange rate and RSI are at a high level, forming two peaks with one peak lower than the other, the exchange rate corresponds to one peak higher than the other, which is called top divergence. This rise in the exchange rate is the last exhausting move, which is a relatively strong sell signal. The opposite of this is the bottom divergence. RSI forms two bottoms that rise in sequence at a low level, and the exchange rate is still falling. This is the last drop or is close to the last drop, and it is a signal to start a position.
Among technical indicators, in addition to the RSI indicator, which has the function of judging the top and bottom of the exchange rate, other indicators also have the function of judging the top and bottom. For example, KDJ (stochastic indicator) has this function. In the KDJ indicator, we often use it incorrectly. In fact, the instructions for the use of this technical indicator also clearly point out that when the D value is above 70%, the market is oversold. The phenomenon. If the operation is completely based on this indicator, it will often lead to major mistakes. This situation is especially likely to occur when some currencies have a strong trend. After the KDJ indicator is likely to passivate at a high level, the exchange rate still appears. rise. The KDJ indicator has a strong pointing role in the process of judging the top and bottom of the exchange rate. In fact, the author believes that the use of the KDJ indicator should be combined with the RSI indicator to judge the success rate of the exchange rate trend.