In 1960, when Lorenz, a professor at the Massachusetts Institute of Technology, was studying the problem of “long-term weather forecasting”, he used a set of simplified models on a computer to simulate the evolution of weather. His original intention was to use the high-speed calculations of computers to improve the accuracy of weather forecasts. However, contrary to expectations, many calculations have shown that very small differences in initial conditions will lead to large differences in calculation results. Lorenz uses an image metaphor to express his discovery: a small butterfly flapping its wings over Brazil may cause a storm in Texas, the United States a month later. This is the famous “butterfly effect” in chaos, and it is also one of the earliest chaotic phenomena discovered.
Chaos theory is an evolutionary theory in which a system suddenly changes from order to disorder. It is a study of the way and mechanism of the formation of the inherent “random process” in a deterministic system. In the stock trading market, we have produced a complete trading system based on chaos theory-the richest man’s consensus decision management center.
Before investors can trade stocks, they must first develop a trading strategy, and the formulation of a trading strategy includes five elements such as opportunity search, entry, stop loss, overweight, and exit. If everyone wants to be a happy and planned trader , Whether it is short-term or long-term, you must make your strategy have these connotations.
The following describes the trading method of Chaos Theory from five levels:
- Look for opportunities
Because 70-85% of the time the market is in a state of no direction, we cannot make a profit under this market condition, so we need to activate the first support tool: the crocodile thread, one of the five magic bullets of the richest software. The main purpose is to avoid the consolidation area and gain the upper hand when the market starts.
Ways to find opportunities:
1). Sleeping crocodile (preferably a crocodile that has been asleep for a while, marked when the blue, red, and green lines are close or entangled with each other);
2).AO is close to the zero axis;
3). Entering the market must start with the sleeping crocodile. Once you have established a position in the market, you must actively enter the market according to the overweight conditions of the Law of Chaos.
Before the price leaves the crocodile’s mouth, do not subjectively judge the possible future direction. Compared with which direction the market is heading, we care more about whether we can get the profit given by the market. You can enter the market from D in the figure. At this time, the wave line has broken through the 0 axis upward at E.
Investors can observe more commodities, wait for the sleeping crocodile to wake up, and bravely get the profits that will appear in the market whenever opportunities arise. With trading methods and resolute implementation, the risk is much smaller.
When we find the sleeping crocodile, we start to wait for the first buy signal-the lower fractal; no matter how many fractal signals are formed, we only look for valid fractals (the valid lower fractal signal must be higher than the crocodile’s teeth-red line ); Not all effective signals will make us profitable, but we should not care too much about this loss. We call it a “low rent area”. This loss is minimal compared to the subsequent profit.
- Stop loss
The stop loss here refers to the stop loss at the initial entry. The crocodile’s teeth (red line) are used as the basis for setting up the stop loss point. When entering the market, if the subsequent closing price is lower than the red line, stop loss and exit.
When the first valid lower fractal is triggered, the first original position can be established, and the investor will become an active trader. As the market price fluctuates, we use AO, AC, equilibrium line, area, and fractal signals in the same direction to enter the market. For example, we use a buy signal above the red line, and vice versa.
After entering the market, we let the market perform by itself, do not set any exit goals, try to extend the profit that the market gives us, we only need to wait for the market to tell us when to exit. Lighten up when the closing price is below the green line, and clear when the closing price is below the blue line.