Ever since the advent of the capital market, humanity has gained an intangible but brutal battlefield for the contention of interests, giving rise to various theories on how to engage in this battle.
Traditional schools such as academics, fundamental analysis, and technical analysis, and fringe theories like chaos theory, astrology, and I Ching have proliferated. I respect and have been engrossed in these theories, but as a market veteran, I now place greater emphasis on interpreting and sensing the market's language itself.
Why do so many people immerse themselves in the capital market? Is it all for the lure of money?
No! Subconsciously indulging in humanity’s inherent "gambling instinct" is also a significant reason many stay in the market. The pursuit of excitement, fear of boredom, blind confidence, and repeatedly rising from failure—traits of this "gambling instinct" are part of human nature, and the almost daily fluctuations provide many seemingly actionable and profitable opportunities.
Thus, driven by an innate gambling instinct, many traders focus their energy and passion on the hope of quick profits, paying less attention to calmly observing the market, establishing a stable profit-making investment style, strategy, and psychology, often trading emotionally and struggling to patiently wait for well-reasoned entry and exit points.
No wonder trading master Williams once said: “My interest in the art of trading far exceeds my interest in making money from the last one or two trades.”
Insight One:
Wall Street's great speculator Jesse Livermore once said something thought-provoking: “The difference between gambling and speculation is that gambling bets on market fluctuations, whereas speculation waits for inevitable rises and falls in the market. Gambling in the market inevitably leads to bankruptcy”. Years ago, I printed this saying and put it on my trading computer!
In the market, we frequently encounter questions like “How high can it rise?” or “How low can it fall?”, which may be casual conversations or serious inquiries, yet often reinforce certain mentalities: what will happen to the market in the future? How can we predict or guess the future?
Real life is full of people tirelessly exploring such questions, with some taking pride in their accurate market predictions.
This is a very normal and understandable mentality. To explore and guess the market's future direction, I have occasionally made predictions and studied everything from “I Ching and Zi Wei Dou Shu” to “chaos theory, neural networks”, from “astrological hypothesis and cycle hypothesis” to “wave theory and Gann theory”, even orthodox “macroeconomic predictions” and other peculiar knowledge about prediction.
Of course, this knowledge does help to some extent in guessing market trends, but as a professional trader, I no longer focus my main energy on exploring such questions. A professional trader's task should instead be “to identify different market conditions, formulate different trading plans based on these conditions, and execute these plans with strict discipline”.
Because, without debating the philosophical proposition of whether humans can precisely predict the future (Dow Theory suggests that “daily noise” is unpredictable), factors like “risk management and psychological control” are crucial for successful investing. This way of thinking makes us more comprehensive in our consideration of markets and trades. In my trading experience, if I traded based on the former approach, my investment performance might have varied greatly, but trading under the latter way of thinking has enabled me to steadily and consistently make money.
Insight Two:
I often remind myself that as a professional speculator, one must be bold and decisive when the market is favorable and cautious and careful when the market is not. Recklessness and cowardice are not traits to possess.
Predicting the future has been a human dream for thousands of years, and forecasting the market is a natural desire for investors. After mastering certain analysis methods and techniques, and having some market intuition and feeling,
we are able to predict market trends to some extent. However, from my personal experience in the market, to continuously and steadily make money, it is more important to “do appropriate things in different environments”, in other words, “identifying different market conditions, formulating different trading plans based on these conditions, and executing these plans with strict discipline” is a job far more important for a professional speculator than predicting the market.
There can be many right investment methods, but the right thinking method should be essentially consistent. Many investors spend too much time on the former without much thought on the latter, which is more fundamental!
I have met many successful investors; despite their different styles, they all share one thing: they all have the psychological traits of “being calm in significant matters” and “knowing when to advance or retreat”.
Perhaps, in capital markets, success has a different philosophy than in other areas. What kind of investment philosophy should we form? What is the essence of trading? As a trader, what are your beliefs about trading?
Indeed, just as people think and act according to their beliefs, love and hate, investors also trade based on their beliefs, often enjoying the joy brought by profits from these beliefs, and also often facing the confusion brought by failures from these beliefs.
Insight Three:
We can't help but ask, what is the trading belief that can enable our funds to grow steadily in the speculative market? The answer will vary from person to person. As a professional speculator, my answer is: abandon any personal beliefs, follow the market's belief; abandon any personal will, follow the market's will; abandon any theory, concept, and skill, and base my phased trading strategy and trading plan on the actual conditions of the market, and trade accordingly.
Follow the market's belief; base my phased trading strategy and trading plan on the actual conditions of the market, and trade accordingly. Just like when we drive, everything is based on the road conditions and real-time traffic situation, without any subjective preconceptions or a priori theories;
Similarly, the behavior of water, whether it's a babbling brook, water dripping through stone, a calm lake, a raging river, or the vast ocean, chooses according to its particular situation, are all at peace, all at ease.
Adam Smith said: “When we are in a certain paradigm, it's difficult to imagine any other paradigm”, and the Sixth Patriarch of Zen Buddhism said: “External renunciation of form is Zen, internal peace is stability”.
For market trading, if you want to pursue steady capital growth, my experience is: abandon all subjective prejudices and hopes, do not seek what you want, maintain the flexibility of your mind and spirit,
understand the market’s conditions and structure through its language, listen to what the market needs, adjust your inner structure to merge with the market's inner structure, and if any unsolvable problems occur during the process, abandon the problem instead of insisting on solving it, thus the benefit of money will not be the only reward.
For those new to the market, it's easy to be dazzled by the changing data and information. After years of experience, they may become confused by the array of analysis methods and trading schools.
After experiencing similar operations and confusions time and time again, people still tirelessly learn various methods, keen to chase every possible profit-making opportunity in the market.
This is half driven by the possibility and temptation of profit and half by human nature's curiosity and pursuit of perfection.
Of course, this undoubtedly yields some benefits. But as the saying goes, “One step beyond the truth is error”, “A miss is as good as a mile”. Following this path can easily lead into a mental impasse.
This is because, just as humanity cannot discover all the mysteries of the world, in the market, we are destined not to capture every profit-making opportunity.
This is a philosophical decree or “God's” arrangement. Newton's late exploration of “theology” was fruitless, and Einstein's research on “unified field theory” also didn't yield much result.
So, should we fall into agnosticism and cease exploring the market? Should we be totally inactive towards the market?
Clearly not. Because, human beings have spirituality. My thought is: “Simplify, simplify, and simplify again” might be a good approach.
Insight Four:
Most masters are simplifiers: Gann built a complex market forecasting system, but in his last work "45 Years in Wall Street", he only recommended a few simple trading rules;
As is well known, Buffett simplified to the point of ignoring ticker tapes, even macro analysis and industry analysis, focusing only on the company's "intrinsic value"; Soros's “reflexivity theory” is merely a colorful robe over a thorough understanding of basic market factors and a superb grasp of speculative psychology, its essence is simple; anyone familiar with Peter Lynch's common sense investing method would be astounded by the simplicity of a master's approach.
“To increase knowledge daily for learning, to decrease daily for the Dao”, “The Great Way is simple, great sound is silent”. Giving up human’s blind arrogance, acknowledging our limitations, not pursuing profits not meant for us, doing what we can, “simplify, simplify, and then simplify again”, this should be the way to survive and win.
What is the purpose of trading? Of course, it is to make money steadily and continuously! However, when we closely observe investors' trading behaviors, it’s not hard to see that their behaviors have been “alienated”; they have lost their original purpose!
Human nature favors completeness and abhors incompleteness. Try drawing a circle but leave a gap uncompleted, isn’t there a slight discomfort if the gap isn't completely filled? This subjective “pursuit of completeness” might constitute part of the motivation for people's goal pursuit, but sometimes, the “pursuit of incompleteness” mentality could more smoothly help us achieve our goals, better enabling us to survive.
Shall I stop loving the “perfect moon”? Not really, I have just realized that in the real world, the unblooming flowers and imperfect moons are a more common objective existence. Even more, I’ve found in traditional Chinese culture, “incompleteness” is practically an aesthetic realm, like the beautiful myths of “Nuwa mending the sky”, the literati and poets’ “Pursuit of Incompleteness Retreat”, and the ingenious “Seeking Incompleteness Pavilion” in the history of Chinese ancient architecture… This fascinates me, and even enlightens me.
“Incompleteness” is practically an organic part of ancient China's character; I admire the realm of “incompleteness”. The thought of “seeking incompleteness" brings us closer to reality, farther from fanciful notions.
As a professional speculator, I've gradually come to realize that in market trading, it’s also important to effectively use the “pursuit of incompleteness" mentality, abandoning the “pursuit of completeness” ideology.
- If the “pursuit of incompleteness thinking” is utilized well, how could we end up frequently trading and blindly chasing rises and falls, only to find ourselves further off the path?
- If the “pursuit of incompleteness thinking” is utilized well, how could we hesitate to sell at the peak price only to be trapped in the end?
- If the “pursuit of incompleteness thinking” is utilized well, how could we risk great market dangers in the pursuit of an even “darker” “dark horse”?
…More importantly, if we make good use of the “pursuit of incompleteness thinking,” we could avoid many inevitable annoyances in trading, making our thinking more clear and concise,
not confused by the complex market situations, and the market trade no longer being merely a profit-making tool, becoming instead a kind of enjoyment and fun.
Insight Five:
True fulfillment exists only in ideology, no one in the world has truly seen something that is perfectly round: Has the moon ever been truly round?
A coin isn’t perfectly round; even a circle made with high technology under a high-magnification microscope can’t be perfectly round.
No wonder Zeng Guofan once said: “...I dare not seek perfection, for the commoners always do; once perfection is attained, stinginess and mischief follow, the world always lacks, while one person always has, such is the way of heaven's flexibility, isn’t this unfair?...”.
So, let's start to appreciate incompleteness while we like perfection, because we loved the full moon, let us love the crescent moon too—they are the same moon, after all!
What is the essential requirement for speculative success? The myriad investment theories and numerous investment books have their answers. I've been engrossed in these theories and books, trying to find the “golden finger” bestowed by God, but what I ended up feeling was just the theories' grayness and paleness,
I also personally asked the president of a certain globally renowned international fund management company in Asia, receiving only evasive answers.
Thanks to long-term practice, experience, and baptism, along with the shift from stumbling to steadily making money, I gradually obtained my feelings, beliefs, and answers: “Strategically conform to market psychology, tactically go against market psychology”.
Strategically conforming to market psychology allows us to capture some strategic opportunities, avoid significant risks, clarifies our overall thinking, and makes our overall trading layout more reasonable; tactically going against market psychology allows us to grasp more trading opportunities, makes our trading more refined, and deepens our understanding and subtleties of the market.
The former is the principle and premise for victory, the latter turns this principle into concrete pathways for actual profit-making, both complement each other, enabling us to remain unbeatable in the market and continuously make money steadily;
The former is a precept that no trader should violate, the latter requires the user to reach a state of melding with the market for "effortless winning".
Insight Six:
Real market masters are never confined to any particular technique, nor do they blindly believe in any policy, theory, technique, or news. What they pursue is a profound grasp of market mass psychology and a complete comprehension of their individual psyches. To let go of constraints is to navigate freely!
Because of losing sight of their original purpose, some investors unconsciously transform their trading behavior into “scientific research”. I've heard some “masters” brag about their perfect trades, such as buying at the lowest price and selling at the highest price, but when I delved deeper into conversation with them, I found that they reveled in a game of research and prediction, either deducing some “patterns” from historical market phenomena or predicting further trend changes based on a theory.
They forgot that to achieve steady and continuous money-making, the real goal of coming to the market, the more important work should be: identifying different market conditions, and formulating different trading strategies based on those conditions. Because the effectiveness of “patterns” or the adaptability of “theories” will change with market conditions, and recognizing these conditions and formulating strategies is everlasting.
Because of forgetting their original trading objective, some investors unconsciously transform their trading behavior into “gambling”. As long as there's a slight hope, they dive in without considering the corresponding risks!
Because they tossed the objective of steadily making money aside, many times they don't seriously assess the risk-reward ratio of their trades.
Having entered the market, everyone hopes to profit and achieve something. Yet, for faster achievements, people often choose to keep acting, acting, and acting again.
I casually flip through recent professional securities journals, and articles with seductive titles like “How to Choose Strong Stocks in an Adjusting Market” and “Passionate Stock Choices in an Adjusting Market” are frequently visible;
I turn on the TV to the financial channels, and the seemingly attractive noise like “Ignore the main market, trade stocks” is everywhere. Little do they know, such thoughts certainly appeal to some innate aspects of human nature (because people always easily believe what they want to believe), but what we more commonly see in the market, many people, by trading this way in search of a shortcut, end up on a longer road instead.
Being active doesn't necessarily mean effective, sometimes doing nothing might be the best choice.
Not to mention the ancient teachings of “acting and refraining” or “the way of both literary and martial arts, one relax and one tense”, not to mention the often occurring real stories of “stillness is better than wasteful actions”, even the successful Wall Street speculators of early days like Edwin Lefèvre said: “Blind and frequent trading is the main reason for losses on Wall Street, even among professional investors,
but I must make the right choices, I cannot act rashly, so I wait quietly…”, he also said: “The secret to my making big money is that I often just sit quietly…”.
Too much activity is mere restlessness. Restlessness dissipates our energy, deludes our minds, and wears down our finances.
Because restlessness mainly stems from psychological blind spots, the way to reduce restlessness mainly comes from adjusting these blind spots, broadly being three:
- Adjusting our view on action, being active does not necessarily mean industrious, being active does not necessarily help us reach our goals faster, sometimes doing nothing is a better state of being;
- Adjusting our attitude towards opportunities, people often think they should seize as many opportunities as possible, but in professional speculators' hearts, what they think more about is “only seizing opportunities that they can grasp, only chasing opportunities that give them a greater chance of winning”;
- Learning to enjoy solitude, a lot of activities are just distractions created by people who fear boredom, “feeling bored when doing nothing” is actually an unhealthy psychological state.
Raging rivers are beautiful, and so are quiet lakes, the difference between them is created by their different environments.
Acting according to objective conditions rather than psychological blind spots, and often quietly sensing the market without engaging in trading, is a basic quality requirement for a professional speculator.
Insight Seven:
True market masters are never confined to any particular technique, nor do they blindly believe in any policy, theory, technique, or news. What they pursue is a profound grasp of market mass psychology and a complete comprehension of their individual psyches. To let go of constraints is to navigate freely! The most important, most easily overlooked, and most difficult to truly achieve aspect in the speculation market is “trading discipline”!
Why is “trading discipline” the most important? Because “trading discipline” is the basis for survival in the market:
For traders, “trading discipline” is like the car’s brakes, the pilot's parachute, and the lifeboat for a ship, able to control risk and save your life at crucial moments; for traders, “trading discipline” is also the real supervisor, making you strictly follow your trading plan, so as not to be confused and emotionally trade by the “daily noise” seen during the trading day.
Why is “trading discipline” the most easily ignored? This is due to the psychological illusion caused by the superficial characteristics of spread income:
The premise for obtaining spread income is the consistency between the direction of positions and the trend of price movements, thereby, people naturally consider predicting the future trend of prices as the most important or even the only aspect of trading, naturally focusing most or all of their attention on predicting future price trends.
However, prediction is fundamentally a game of probabilities, good forecasts can indeed increase winning odds, but I’ve also seen traders who predicted correctly nine out of ten times but ended up losing, due to the lack of “trading discipline” in controlling risks on that losing trade. We also often see individuals who “talk well but perform poorly”, primarily because “trading psychology” including “trading discipline” hasn’t been properly resolved.
Why is “trading discipline” the hardest to truly achieve? Because “trading discipline” often contradicts human nature: the pursuit of personal subjective desires, acting based on personal emotions rather than willing to be restricted is human nature; subconsciously thinking that one can achieve what others cannot, can do what is disciplined to others, or always holding a glimmer of hope for one's own trading behavior are essentially elements of arrogance inherent in human nature;
Only considering the positive aspects of actions, innately unwilling to acknowledge or examine the negative aspects, the “ostrich mentality” can indeed bring psychological pleasure or numbness; the randomness of short-term market fluctuations makes executing “trading discipline” seem like losing some “market opportunities”, enough to confuse or even “regret”, not realizing that “trading discipline” is the most important talisman for a trader.
The path of trading is always lengthy and arduous. With some major changes in recent years, the investment market will also see massive changes. Most of the time, we need self-reflection and improvement, learning to actively adapt to the new era. Only by doing so can we avoid being eliminated by the market. In this regard, I also welcome deep conversations with everyone, thank you!
