Today is January 1, 2024, and first of all, I wish everyone a Happy New Year! In the new year, may everything go smoothly and may you all make lots of money!

This article is also quite special today because I've noticed that everyone's pain point is not knowing how to systematically learn trading. Sometimes you learn a bit here and there, but overall, trading remains chaotic.

So I decided to write a "year-end summary" to organize several key points that are essential for learning trading. At the same time, I will share my private book list, with must-read books for each learning focus to help you study and absorb more systematically.

Today's article will be divided into four parts:

1. Trading Basics

2. Technical Indicators

3. Trading Systems

4. Trading Psychology

1. Trading Basics

Key Point 1: Candlestick Charts.Looking at the charts on trading software, the first thing you'll see must be the candlestick charts, in different colors, rising and falling, bearish and bullish candles.

Why is it essential to study candlestick charts diligently?

(1) Candlestick charts represent the price on the chart; they symbolize the price. Only by understanding candlestick charts can you discern whether the market is rising or falling. This is the first step in trading.

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(2) Candlestick charts also serve as technical analysis tools. The patterns of candlestick formations carry implications of reversals and continuations, such as doji, hammer, and others. Additionally, candlestick combination patterns are crucial trading techniques, like reversal patterns at tops and bottoms and continuation patterns, which are widely used technical standards in trading.

(3) The universality of candlestick charts is incredibly strong. Almost all trading market charts use candlestick charts, including stocks, futures, forex, and digital currencies. They are applicable to any type of trading.

(4) Many technical indicators used in trading have significant connections with candlestick charts, such as key reversal patterns, 123 break patterns, and 2B patterns. Without a good grasp of candlestick charts, these subsequent trading techniques cannot be effectively utilized.

How to learn candlestick charts?

Step one: Start with books.

"Japanese Candlestick Charting Techniques," translated by Ding Sheng Yuan, covers the origin of candlestick charts, their composition, the logic behind the formation of bullish and bearish changes, the significance of candlestick patterns, and methods of combining candlestick charts with technical indicators. This book provides a comprehensive explanation of candlestick knowledge from the basics to practical application.

If you are a novice in trading and have just been introduced to candlestick charts, do not do anything else. Read this book two or three times. I, myself, read this book many times before I gained a different understanding of candlestick charts.Based on my years of trading experience, the reversal candlestick is the most effective candlestick technique, which must be given special attention and used with emphasis. Moreover, there is no need to learn too many reversal candlestick patterns; it is overwhelming and often unnecessary. Focusing on learning three easy-to-learn and useful reversal patterns such as the "Engulfing Pattern," "Morning Star/Evening Star," and "Doji" is sufficient.

Step Two: Analyze the charts.

After you have finished studying the content in the book, identify several key patterns that you will use in the future. Observe these patterns on static charts to see how they change in the market trend, when they reverse, and when they do not. Summarize and record these observations frequently.

In the past, observing candlestick patterns on static charts can be misleading. Some patterns may appear very standard after they have formed, but before they are formed, they often give a vague impression. This requires traders to put in the effort to observe and compare more.

After such observations, it is also necessary to conduct dynamic observations and learning in live trading or through backtesting software.

Only after becoming familiar with static patterns and understanding dynamic ones can one consider using candlestick patterns in actual trading.

Key Point 2: Knowledge of software usage.

Software usage is fundamental and very important, yet many people overlook its significance, not even knowing how to place orders.

There are also many friends who, due to their lack of proficiency in software usage, place orders incorrectly, open positions in the wrong direction, or open positions with the wrong size, often making such basic mistakes. This leads to unnecessary losses, which is quite regrettable.Regarding the use of software, contact the customer service of the trading software you are using to request a user manual, or there are many tutorials available online. You can easily find a lot of them; do not be lazy in this aspect.

Key Point 3: Market Knowledge.

Market knowledge is mainly divided into two parts. One part is the basic situation of the trading market we are involved in, such as understanding the origin of the futures market when trading futures, why short selling is possible, futures exchanges, futures companies, listed varieties, and so on.

The other part is the details of the trading products and the rules of trading, such as the gold futures on the Shanghai Futures Exchange, with a trading unit of 1 kilogram/hand, quotation unit: yuan/gram, and trading times divided into morning, afternoon, and evening sessions, etc.

In fact, the official websites of various futures exchanges have explanations of these futures contracts, and everyone can go and look for themselves to thoroughly understand the varieties they intend to trade.

If it is foreign exchange trading, I recommend everyone to read the book "Advanced Foreign Exchange Trading." It covers the basics of the foreign exchange market, the use of trading software, and the details of contracts, such as what is the value of 1 lot of EUR/USD, what is a pip, what is the spread, and so on. It is a very thick book and covers the subject comprehensively; after reading it several times, you will become proficient.

Understanding these three points well is considered to have laid a solid foundation. Next, it's time to start learning about technical indicators.

2. Technical Indicators

Technical indicators are calculations based on price changes, derived from different mathematical formulas, and represented on charts in various ways.

Why do we need to learn technical indicators?Because the role of technical indicators is to conduct technical analysis of the market trend, to determine whether the market is likely to rise or fall, and to provide signals for entry, stop-loss, and profit-taking standards. Technical indicators are the technical standards for trading operations and are an important part of trading.

Moreover, as long as we trade according to technical indicators, we can eliminate subjective interference, ensuring the consistency of our trades.

During the trading process, emotionalization is very serious. For example, when holding no positions, one may feel anxious; when holding positions, one may feel afraid. Without technical indicators as trading standards, trading would only be blindly chasing rises and selling on falls, not stopping losses when wrong, and not holding onto positions when right, which would inevitably lead to more losses than gains.

How do we learn technical indicators?

Step one: Read books.

"Technical Analysis of Financial Markets" by John J. Murphy. I evaluate this book in six words: foundational, comprehensive, and effective.

This book begins by explaining the basic principles of technical analysis, including the market behavior that encompasses all information, prices move in trends, and history repeats itself, which are the foundational logical supports for technical analysis.

It then explains the basic definitions of trends, including Dow Theory, to the basic usage methods of various indicators, and even discusses the advantages and disadvantages of indicators.

This book can be read multiple times, but it is not necessary to learn all the indicators. It is sufficient to learn and understand the most commonly used indicators such as reversal patterns, continuation patterns, moving averages, Bollinger Bands, Fibonacci retracements, MACD, and RSI.

When I was learning indicators, I also experienced a very chaotic knowledge system because I learned too many indicators. This not only wasted a lot of time and energy but also made my trading lose focus and took many detours.In fact, a trading system can be composed of some basic and easy-to-use indicators. Don't be greedy, nor pursue overly sophisticated indicators, as you will eventually find them to be of little use.

Step Two: Observe the charts.

We need to observe the changes of these technical indicators on the charts, including both effective and ineffective situations. Additionally, it is necessary to observe the combined effects of different indicators, such as the resonance between moving averages and the Fibonacci retracement, or between moving averages and MACD, etc. Observe the impact of resonance on the effectiveness of the indicators and keep good statistical data.

There can also be distortions when observing indicators statically, so after a period of static observation, use simulation software to observe the dynamic changes of these indicator patterns. This is the only way to truly enhance your understanding of the indicators and strengthen your judgment.

Here, I would like to remind you again, most people learn many indicators, but in actual combat, the indicators they really use are just two or three. Learning more is to lay a foundation and broaden our understanding of indicators, allowing us to compare them and select the most suitable ones.

Once you have chosen, you should delve into studying and verifying that indicator, and not change it casually. It's like dating; you can date multiple times to find the most suitable person for you. Once you find them, don't be fickle, otherwise, your love life will definitely not be happy.

3. Trading System

A trading system is a fixed framework for trading, standardizing every step of your trading behavior, and ensuring that your trading has a consistent standard.

Why do we definitely need a trading system?

Because the trading market is very disorderly, and most people are like headless flies. We can only create order for ourselves to outperform others in the market.A trading system is a set of rules that governs every step of a trade, ensuring discipline and preventing impulsive actions. It doesn't allow you to take every trading opportunity that comes your way, nor does it let you get carried away with chasing gains and cutting losses in a frenzy.

Once a trading system has been proven to be effective, it can also help build our confidence in trading. Often, people tell me, "Teacher, I have a good sense of the market trends, but I always fail to hold onto my orders and make money. What should I do?"

The root cause of many of these issues is the lack of a trading system. Without it, you are uncertain about the future development and changes in the market, and you don't know what to do next. You lack confidence in the market and in yourself.

If at this point we have a trading system that has been verified through long-term backtesting to be profitable, we will be more resolute and confident when operating in live markets. It also helps with our execution, which is the significance of having a trading system.

How do we build a trading system?

Step 1: Building the Trading System.

"Trend Trading" is the most comprehensive book on trading systems, explaining the basic framework of a trading system, several methods of trading systems, and how to conduct backtesting.

I started building my trading system by referring to his book and videos, even using the same backtesting software as him. You can also refer to the main content of this book and try to build a trading system.

Step 2: Observing and Verifying the Trading System.After we have set up the trading system, we first need to observe its effectiveness on the charts and conduct some data statistics. Once the statistics confirm its validity, we can start testing it with backtesting software.

During the backtesting process, we often encounter many detailed issues, which allows us to make modifications and improvements to the trading system, gradually fine-tuning it.

The process of backtesting and modifying takes a certain amount of time, and patience is essential at this stage. It is even more effective if further validated through a simulated trading environment.

There are several points to note when building a trading system:

(1) Trading systems are divided into trend-based and oscillation-based types, and you can only choose one. For a trend-based system, use trend indicators; for an oscillation-based system, use oscillation indicators. The book "The Bible of Trading" provides a very detailed explanation, and interested friends can read it for themselves.

(2) Backtesting is an energy-consuming, tedious, and patience-testing task. I spent about two years backtesting, testing various indicators and methods, which was the fastest phase for my understanding of trading, indicators, and trading systems to improve. It was also the most valuable thing I did to achieve profitability.

I strongly recommend that everyone personally backtest to verify their own trading system.

4. Trading Psychology

Trading psychology refers to the changes in our mental state during trading and the control of emotions.

Why do we need to discuss trading psychology openly?Because there is a huge gap between "knowing" and "doing," just like the principle of losing weight, which is as simple as controlling your diet and exercising. Everyone understands this principle, but very few can persist in doing it.

So it is the same in trading, where various psychological issues are intertwined, such as lack of confidence in one's trading strategy, impatience for opportunities, and a lucky mentality towards holding positions. Any single psychological issue could lead to substantial losses.

In trading, luck, regret, hesitation, greed, and fear, any emotion can have serious consequences.

How can we achieve effective emotional control?

Firstly, extensive review and practice are crucial, as technical issues can resolve most psychological problems.

There is a saying, "Ten years of hard work behind the scenes for one minute on stage." When you have practiced countless times off stage, you will have confidence and be less likely to make mistakes on stage. If you don't practice well off stage, you are bound to embarrass yourself on stage.

Many people do not do well in trading because their technical practice and testing are inadequate, and they go to the battlefield with a rough, semi-finished product.

In the process of extensive review, we will encounter various market trends, experience the impact of long-term trends on the trading system, and understand how many times in a row our trading system can be wrong, how long it can be wrong, how much money it can lose at most, and whether we can withstand it. These will all have answers, so we will have a bottom in our hearts during actual trading, and we will not panic when encountering them.

If the trading system has been verified over the long term to be profitable, and we understand what the process of making money is like, our trading perspective will be long-term, and we will not be overly concerned with every single trade in the present. This will give us more confidence in our trading system and maintain our execution.

Additionally, we must read more books, think more, and improve our critical thinking abilities.Reading can broaden one's horizons, expand one's thinking, and enhance the ability to think critically. When I encounter intractable problems in transactions, I turn to books to see how others have solved similar issues. Books may offer new solutions or provide new perspectives on these challenges, leading to a sudden realization.

The financial markets have evolved over the years, with trading rules and environments changing, but the essence of human nature remains constant. The problems we face today have been encountered by others in the past, and most can be resolved by referring to books.

Starting from candlestick charts, moving on to technical indicators, trading systems, and refining trading psychology, the path to profitable trading becomes clear.

In today's article, I discussed many books with you. Below, I will summarize the ones I consider particularly good.

Technical category: "Japanese Candlestick Charting Techniques," "Technical Analysis of Financial Markets," "Trend Trading," "Advanced Forex Trading."

Trading psychology category: "The Turtle Trading Rules," "The Clear Mirror," "Trading Psychology," "Trading Psychology Analysis," "Trading for a Living," "The Trading Bible," "Reminiscences of a Stock Operator," "The Black Swan."

I recommend that during your trading education, you go through all these books, record the content you find important, and allow the ideas from the books to gradually enter your mind. This will subtly change you and slowly form the correct trading perspective, which will greatly help your trading and life.

As we enter a new year, we should approach our trading with more rationality and objectivity, make positive changes, and wish everyone a better and better 2024!