Diary
I used to think that it was the operators controlling the ups and downs, then I thought it was the market makers controlling them, but both have logical flaws and cannot form a complete logical loop. The concept of operators became so popular partly because, when regulation was lax, there were indeed many operators in the A-shares harvesting retail investors. But now with strict regulation, the risks of operating have become too high compared to the profits.
Moreover, in such a vast market as futures, no one can truly manipulate it— not even the giants like hedge funds and quantitative institutions, which are just a very small part of the entire market. Once you try to manipulate, larger funds will come to counter you. There have been too many schemes of forced shorts and longs in the history of futures; methods like spoofing which caused the flash crash in U.S. stocks in 2010 have long been banned today with global regulation tightening. Later I learned that there are not only market makers providing orders in the market. Furthermore, the trading strategies of quantitative institutions, hedge funds, and market makers are commercial secrets; once leaked, they will be targeted by other institutions, leading to the failure of the strategy. Therefore, it is almost impossible for ordinary people to fully understand these.
I have learned a lot: indicators, cyclical theory, price action, ICT, SMC, order flow, tactics of individual profit makers, Dow Theory... they each have their own explanations and philosophies. This is my process from simplicity to complexity.
Now my understanding of the essence of the market is market consensus— the market is always searching for a price that both bulls and bears consider fair to maximize trading. Only with market consensus can everything be logically explained.
For example, when the price oscillates repeatedly within a range, then breaks upward, but the subsequent bulls are weak, and the price falls back into the range. Wyckoff 2.0 believes that such false breakouts have an 80% probability of returning to the other side of the range. Price action theory suggests that 80% of breakouts from oscillation ranges are false breakouts, or even trap back to the other side of the range; no one can know in advance that this is a false breakout. It forms because the market consensus believes that the price is too high, and the bulls are unwilling to continue pushing. When the price returns to the range, the bearish force confirms the weakness of the bulls, and the decline naturally occurs. SMC/ICT believes this is institutions preying on liquidity, but I do not think so.
My understanding of trading today and the direction for stable profits is that every trade must have a positive mathematical expectation after opening a position; reasonable position management is necessary for stable profits. The core reason for not achieving stable profits is doing too many trades or having position management that lacks clear mathematical expectation. Successful quantitative trading always has a mathematical advantage in every trade, with a positive mathematical expectation. In fact, trading goes against human instincts; ordinary traders always trade based on feelings, and after 10 or 20 years, they end up with consistent losses. Ordinary retail investors should imitate and reflect on whether each of their trades has a mathematical advantage. If a certain position has a mathematical advantage, it will become the consensus of institutions. Institutions provide nearly 90% of the liquidity in the market, and their consensus determines the market direction. Institutions open and close positions based on many factors including mathematical expectation, profit-loss ratios, probabilities, and risks. Successful quantitative trading can always guarantee an advantage in certain aspects, thus achieving stability in the end. Their trading actions are based on mathematics, so there are traces to follow. Different institutions have different algorithms, but the fundamental truth is that all successful quantitative algorithms are based on mathematics.
I believe the most critical qualities in trading are: independent thinking, logical reasoning, and Bayesian thinking. If you understand Alex Gerko, you will know that top quantitative firms do not hire trading experts; they hire scientists, mathematicians, and statisticians.
This article is sourced from dy user's diary 93518631137 and some of my own understandings.