A word about the law of grid trading

Via: http://blog.sina.com.cn/s/blog_a3795bd40102vcu9.html

One day in the 1940s, the father of information theory, Shannon, demonstrated on a blackboard: 50% of the money bought at any one price, i.e. the amount of money: the market value of the stock = 50%: 50%. The price of the stock rises to a certain extent, selling a part of the stock and keeping the remaining amount of money: the market value of the remaining stock = 50%: 50%; on the contrary, the stock price falls to a certain extent, buying a part of the stock with the remaining money, always keeping the remaining amount of money: the market value of the remaining stock = 50%: 50%. This method is used to pay for the random movement of the stock price, and long-term trading is profitable. The idea of guiding trading with zero risk theory was the reason for this group of early colleagues. The typical trading pattern of zero theory is n%, 1/m. n% refers to the magnitude of the rise or fall, m refers to the average share of the next transaction bought or sold. The price of each transaction is calculated by reference to the price of the previous transaction.

However, the only trading ideas that impressed me the most about Zero Theory, and that have stood the test of time and the market, are these two sentences: 1. The fall in stock prices is unpredictable; 2. The stock price increases and the stock price decreases and the stock price increases and the stock price decreases. The first sentence of the two sentences is the market perception of the price of the stock, and the second sentence can be seen as a way to make a profit from trading. The second sentence is a summary of the market perception and its characteristics of price movements: 1. the volatility of stock prices; 2. the randomness of price fluctuations; 3. The reason for the two characteristics above is the gambling nature of the funds.

The description of the above characteristics shows that, except in some extreme cases, stock price volatility can be considered normal in most markets. The randomness of the volatility is indeed too complex to explain the reasons for the changes, even if the most important factors are collected. The volatility, however, reveals the eternal underlying causes of market changes - the many subtleties of market fluctuations, and the waves of price changes that grow because of human nature.

Can the old grid trading system have all of these features?

The few articles I have read on network trading law do not contain a comprehensive discussion of the market view, only a simple method is used in its specific form in the public circle. Network trading law is perfectly capable of deducing all the above trading ideas. Network trading law is characterized by heavy capital management and light trend forecasting. At the end of 2007 I thought about the question: can a complete money management trading method be continuously profitable?

I've considered several trading models that are characterized by the distribution of the form of the funds raised, and I've been talking to a bunch of friends:

1. This is a model of equity buying and equity selling -- the binary model.
2. Pyramid funds buy and sell pyramid chips -- the double-gold model.
3. The index fund buys and sells index-linked chips -- known as the two-finger model.
4. Bamboo Festival trading model;
5. Equal-proportional position model;
6. The market value model;
7. The trend + grid model, which combines trend analysis with adjustment of trading parameters, is known as the trend grid model.
8. Combination models (referring to models with distribution features that are not normally symmetrical and models that combine two or more of the above models)

In order to simplify the operation, the aim is not (no prediction, no stock options, no basic analysis), except for the 7th model above, which has not been tested in practice, and the other 7 models have had some practice to varying degrees (because of the lack of data, I will discuss some qualitative aspects of the application later). The first 1, 2 and 3 models can be used as the basic trading model. The approximate corresponding models proposed by zero theory are called the uniform distribution, the linear equation, and the index method. But in zero theory, only the buy-and-sell application is used, not the symmetrical sell-and-sell method. And the uniform distribution is used as a pattern of n%, 1/m, where n and m are constants, whereas in the binary model, n and m are variables. Note this difference in the discussion or application of the exchange.

In this article, I will focus on the purchase and sale of tokens in the form of tokens, which are also known as the binary model. Specific explanation: in the process of falling stocks, always buy with the remaining funds in the lower grid; in the process of rising stocks, always sell with the remaining tokens in the upper grid. This model is very close to the uniform distribution in the zero-law (the uniform distribution in the zero-book applies, its illustration and real-world examples are contradictory, and the purchase method in the illustration is the binary model. I would have liked to use the term binary distribution, and the zero friends would have been easy to understand, to avoid possible disagreements, and use the binary method name), but in the real-world application, the zero-use pattern ((n%, 1/m) and the method of taking n = constant makes the range of the mathematical concept of the model infinitely large - that is, the money and the raise are infinitely large, but if the value is taken incorrectly on n and m, it is commonly used.

The use of binary trading models includes 1. stock options; 2. determination of trading ranges; 3. stock building; 4. live combat; 5. adjustment. The five steps are:

1. Select stock: If the stock does not go public, it is almost possible to use binary trading. As a variety of long-line holdings, it is recommended to pay attention to the underlying. On the premise of not going public, perhaps the only thing to consider is the activity of the stock, which often shows the long-term volatility of the stock. Activity v=a/A; one of the stock volatility a= (maximum-minimum) /minimum; one of the large-disc volatility A= (maximum-minimum) /minimum. The highest and lowest values are recommended for the last two months. Values can be divided into four ranges: 1.3 below, 1.3 below, 1.7 above, 1.7 above, 2.0 above, the higher the number, the more active the stock, and can be used as a reference for maintaining a relatively moderate frequency of trading fluctuations, for example, a set of suggested corresponding percentage parameters is 3%, 4%, 5%, 6%. Some people like to use a certain range of fixed prices.

2. Determine the trading range: The valuation theory is the most common in this regard, and there are many methods of technical analysis and basic analysis. In short, important support and resistance levels can be used as reference trading price ranges for long and short lines. For long lines, the market cap and market net can be used as important indicators, for example, financial stocks. I prefer to use 1.2 to 1.5 times the net market rate as an important reference for the lowest price, while for resource stocks I prefer to use net assets as a reference for the lowest price. Important tip: Perhaps any of the above methods of determining the trading range have their applications, and determining a reasonable trading range is just to maximize the efficiency of the fundraising. But the market cannot be accurately described in theory -- because human nature is wonderful. To borrow a quote from Rogers: Investing profits is holding the price you want to sell at after a low buy price.

I've considered a specific hedging approach that can ensure that trading in a trading zone is constantly trading up and down, never losing, and ensuring that all the chips are bullish and bearish. Suppose you have a total investment of 200,000 yuan, for example, you have determined a stock (£10.50) trading range, divided a total of 40 trading grids from low to high, using a fixed difference of 1 change per grid, now you want to build a store at 25 yuan, that is, from 50 yuan below you should build a store at the 25th grid. The treatment is as follows: suppose you start buying the first grid at 50 yuan, average to 40 grids, each grid purchase is 5000 yuan. The binary model can have a suggested number of stocks at any price in the trading range. Theoretically, stocks can be built at any one price. For this, I simulated stocks from the highest point at 6124 at 60.1628 Chinese Yuan, with a grid size of 75.4%, assuming a full grid size at the lowest point at 16.64 at 17.2 Yuan, and assuming a steep nine-day slope, with a maximum market value of 50%, at which point the cost of holding stocks is about 34 USD, which is about 0.3 USD, which is about the bottom of the trading range. It is generally recommended to place a position in the lower zone of the trading zone. It can also refer to certain price formats or technical indicators (long-line trading can be simplified to basically regardless of price formats or indicators). Some people may prefer to use the 1/4 position method, 1/2 position method, or the line *** position method, etc. It does not matter, the model will tell you how much you should buy and sell in the future, and after a certain time, the position ratio will be adjusted. For long-term trading, the number of lighter or lighter positions does not have much effect on earnings. Even if the position is too light or too heavy, real-time trading according to the number of calculations of the model will quickly make the shape of the capital distribution go to normal or say the right way up; but there will still be a certain amount of stop loss or tramp early.

4. Real-time battle: The stockpile is completed, and the subsequent transactions can be carried out normally. The funds are bought and sold, the funds are sold and sold, the funds are bought and used. The remaining funds are calculated by dividing the number of lower grids at the transaction price, and the funds are sold and used. The only thing that needs to be reminded or discussed with your friends is the trading discipline. I recommend that you must trade according to the calculated price and quantity on any grid, without any hesitation or guesswork, what to do. From the beginning, develop a good habit of adhering to the trading discipline: fall to the point of buying softly, fall to the point of selling without hesitation; do not fall to the point of constantly moving hands. Binary trading is a typical programmed trading, the shape of the model will ensure that you always maintain the correct position ratio in the trading range as the price changes, and will also ultimately realize the market provides you with your earnings. Here is a phenomenon that occurs in the trading process: in the relatively low zone trading process, the overall performance is to buy more and sell less; while in the relatively high zone trading process, the overall performance is to buy more and sell less; in the relatively middle zone, the overall performance is to buy and sell more and sell less. This phenomenon is to tell you the price to enter the high zone, start with a setup mainly, to keep the profit; the low zone is to raise the mainly, to raise more.

Adjustment model: If the long-line trade, and the price range of the transaction to consider the target price is relatively abundant, it is not necessary to adjust for a long time, because it is close to or reaches the point of never-ending buying and selling, always have money in hand, always have the trading concept of the chip in hand, you can make the upswing and keep selling, falling and keep buying. Finally, able to do this, the group can assume that really know and understand the market, how to adjust the trading model can be as desired, even without doing anything specific.

The design and operation of the binary model can be discussed with your friends here, and a brief explanation of several other trading models can be found below. 1. In terms of mathematical characteristics, the first three models belong to the bounded-quadrant transaction range, the fifth and sixth two models belong to the bounded-quadrant transaction range. Several other models are intermediate in form, and can be both bounded-quadrant and bounded-quadrant. 2. Each mathematical model has its own range, but discussing whether the return will be maximized is not as important as discussing exactly what you want from the market, focusing on the profit of that part. The first three as basic trading models have the characteristics of lower prices for each purchase of more chips, higher prices for each sale of more chips, which is very suitable for a wide range of volatility and liquidation in the trading range. The last law is easy to understand: for example, 10 buys 10,000 shares, 50 bucks all sold, falling back to 10 can buy 50,000 shares. 3. As can be seen from the above discussion, the smaller the trading interval, the shorter the time, the better to maximize the liquidity of the liquidity of the liquidity of the liquidity of the liquidity of the liquidity of the liquidity of the liquidity of the liquidity of the liquidity of the liquidity of the liquidity of the liquidity of the liquidity of the liquidity of the liquidity of the liquidity of the liquidity of the liquidity of the liquidity of the liquidity. 4. The bamboo block model is based on the model ((n%, 1/m), with the purpose of bamboo blocks to maintain a large range of middle or long lines between the trading ranges. It is practical for investors who do not trade frequently, and the number of transactions between each segment is clear. Because the binary model is more convenient to calculate with EXCEL tables, the use of bamboo blocks becomes an important factor to consider when adding to the hedge or because some securities companies restrict the sale of shares. 5. Using a mathematical model that basically does not take into account the calculation of the reinvestment of profitable funds, the model will automatically tell you the shape of the distribution of funds should have at each price. Each time you buy, your chips will increase a little, and each time you sell the remaining funds will increase a little. Long-term volatile games, like the pumpkin, suck the blood of the pumpkin all over the body. The model will be like a tree, each set is like a drop of fertilizer, each purchase is like a tree that grows a little thicker, with the development of the economy and enterprise, the model will grow taller and fatter as the enterprise grows. 6. I will say a little about the trend + grid law method: my opinion: following the trend and the market concept of grid law are opposite (note: the method of reversal and grid law are similar, but not very popular), which is a mixture of two different trading methods for determining the market perspective. The former is based on trend forecasting, the latter is entirely on money management. Trend analysis is more experience, and the adjustment of parameters made with the trend is also more experience or feeling component.

About the investment portfolio: I recommend to all my friends the value of the information on risk control information such as the risk control theory of Liu Chenkun's portfolio and the analysis of stock futures. The mathematical inference is very thorough and the conclusion is enough to remember. The network trading method can be used as a money management system for individual stock trading, and the conclusions in the book can be applied to the individual comprehensive three-dimensional stock portfolio trading money management system. 1. Select 5 and 7 shares as the investment portfolio; 2. The lower the correlation between these stocks, the better, or even the better the inverse correlation; 3. Combination investments both avoid the risks of a single investment and are relatively easy to win and lose. Some of my friends may think that concentrated investments would be better if they could see it (Buffett says the same thing); in fact, careful analysis is not a contradiction, only a matter of quantity. I feel that the benefits of combined investments take a certain time to see, before there will be a realization, for example, the People's Bank is a good stock, but when the stock market rose by more than 50% from 1664 this year, it gained more than 30% a little bit, far behind the stock market, and some sectors have already doubled. 1. the combination of different sectors with less relevance; 2. a combination of stocks with different characteristics (activity); 3. Long and short-line trading portfolios according to different stock characteristics (activity) and stock quality; There is no absolute standard ratio of portfolio investment, even if the activity is only a relative meaning, if someone likes all the investment warrants, the relationship between the warrants that can be proposed is also as follows: the varieties with high activity are also generally higher risk, the number of holdings should be slightly less, on the contrary, the risk is also smaller, the number can be slightly more. The long-term trading grid trading range should be used as the control basis for the total position, the medium-short range varieties are mostly using high-activity small-disc stocks and warrants. The ratio of the combination of long-term short lines, I will not go into detail, there is an opportunity to exchange. The medium-short-term network trading generally breaks the grid trading range, then profits out.