Caidao Hao: Why should we avoid the "swarm" approach in futures trading

[paragraph]stayfuturesA swarm of people rushed into the market, taking all risks, all just betting on one investment, eager to get rich overnight, assuming that they could understand the market's temperament. These impulsive investors, except for occasional lucky ones, have mostly been eliminated by the rules of the futures market.
Why should we absolutely avoid investing in the futures market in a swarm?
First of all, let's return to Gann's theory. Even if we don't care about the authenticity and usefulness of his charts, let's just talk about Gann's defensive investment strategy of warning stop loss. This warning is undoubtedly correct. In the movie 'Wall Street', Gordon Gage once exclaimed that greed is beneficial, but ultimately ended up in jail. Not letting go of any clues in the market, as soon as there is any movement, there will be an immediate reaction. Overtrading and frequent entry and exit in the market result in small losses and heavy losses. Some have suffered consecutive losses but failed to stop losses in a timely manner. They went all the way to the bottom and continued to invest in an attempt to recoup their losses, but ultimately suffered a crushing defeat. Smart people always use calmness to cool them down and restrain their desires within a safe range, so as not to let greed dominate their behavior and ultimately result in a disastrous defeat. Jiang En's analysis of stock market risks mostly focuses directly on the psychological issues of investment.
Secondly, speculation itself is highly susceptible to psychological fluctuations. This is both the basis for futures investment and the reason for losses in futures investment. Why is it sometimes calculated based on formulas that even though the price should have reached its peak, the overall trend is still rising?Why is it that sometimes when analyzing based on the signals of a chart, even though it should be the end, the price trend still continues to decline?The ups and downs of the futures market are often more due to psychological factors, namely market sentiment, rather than technical factors. When people's hearts improve and buying enthusiasm is strong, prices rise;People have a pessimistic outlook, heavy selling pressure leads to a decline in prices. If the bullish sentiment persists, the price will not top; if the bearish sentiment is timid, the price will not bottom. This is still a swarm of problems analyzed from a purely technical perspective. In reality, the rush of futures investors into the market is often a signal of significant changes in the macro market, and its danger is no less than the tense events before the war.
Finally, the futures market is indeed a zero sum market. There is no absolute winner in the market. The buying and selling parties are in a life and death struggle, and profit is the bargaining chip obtained from the losing party. Speculators are not only profiteers, but also bearers of futures risks. Through the practice of futures trading operations, it has been proven that hedging transactions alone cannot achieve the goal of transferring risks in a market. The imbalance between long and short hedgers is frequent, therefore, hedging is difficult to achieve in a market solely dominated by hedgers. The participation of speculators can precisely compensate for the imbalance in this market and promote the realization of futures trading. Without speculators or sufficient speculators in the futures market, hedgers have no trading partners, and risks cannot be transferred. The function of hedging in the futures market to avoid risks is difficult to play. So this mechanism itself is a rule for reasonable speculation.
The direct control of market fluctuations is ultimately the balance of power between buyers and sellers. Moreover, there are always two tendencies in the basic causes, and opinions vary from person to person. Everyone just needs what they need. The unique correspondence between long and short positions in the futures market determines a fact: whoever has more funds and spot trading is bound to be the absolute winner. There is no other way, as for small-scale futures investors, they are just small players who follow the crowd.
Source: Financial Headlines
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