A retracement is a phenomenon that is temporarily or retraced in the process. When there is a certain level of retracement in a short period of time, it is called a retracement. This phenomenon is one of the most common phenomena in the market, and it is also one of the risks that investors need to understand and deal with.
1. Definition of drawdown
A drawdown is a temporary drawdown or pullback in the process. It is often seen as part of a correction rather than the end of a trend. Drawdown is a normal market behavior in the market, reflecting the characteristics of market volatility.
Second, the reason for the drawdown
1.Market supply and demand relationship: The market supply and demand relationship has a very large impact on the market. When there are more buying orders and fewer selling orders in the market, it is possibleConversely, when there are more selling orders and fewer buying orders, **may**. Therefore, when an investor starts selling, there is a chance that a drawdown will begin.
2.Investor Sentiment Swings: Investor sentiment has a significant impact on the market. When the market sentiment changes from optimistic to pessimistic, investors may choose to sell**, resulting in *** Similarly, when the market sentiment changes from pessimistic to optimistic, investors may choose to buy**, thus pushing *** higher
3.Technical Adjustments: In the course of the process, the value of the Adjustment may be exceeded. At this time, the investor may choose to sell** to make a profit, causing *** to return to a reasonable level.
4.Profit-taking: When ***, investors may choose to sell** to make a profit. Once the trend reverses, they may re-lead to ***
5.External factors: ** Influenced by many external factors, such as economic policies, international situations and natural disasters, etc. These factors are usually unrelated to the company's fundamentals, but have a significant impact on the entire ticket market, leading to a drawdown.
3. Characteristics of retracement
1.Temporary: Retracements are usually temporary and do not represent a reversal of the entire trend. It is part of market volatility and reflects fluctuations in market supply and demand and investor sentiment. After the drawdown is over, it is possible to continue.
2.Magnitude of the amplitude: The magnitude of the drawdown varies from market to market. Some may only retrace by a few percentage points, while some may retrace by more than 20% or more. In general, larger drawdowns may take longer to recover.
3.Duration: The duration of the drawdown is also uncertain. Some drawdowns may only last a few days, while others may last for a few weeks or even longer. The duration of the drawdown depends on the impact of market supply and demand, investor sentiment, and other external factors.
4.Drawdown Phase: Drawdown can usually be divided into phases. The first is the beginning, then the retracement increases, and finally the retracement tends to end, the beginning. Investors can judge the state and trend of the market by studying the retracement phase.
5.Technical support: In technical analysis, there are some indicators and tools that can help investors identify and analyze retracements, such as moving flats, relative strength indicators (RSI), etc. These technical tools can provide signals on the magnitude, duration, and trend reversal of retracements.
Fourth, the strategy to deal with the first drawdown
1.Technical Analysis: Use technical analysis tools and indicators to study charts and movements to identify possible retracement signals. For example, moving flat can help determine the direction of a trend and identify possible support and resistance levels.
2.Value investing: Adopt a value investing strategy to find undervalued quality**. When retraced, these value stocks tend to be better able to withstand the market and have greater potential to recover.
3.Regular Investment: Adopt a regular investment strategy and invest a certain amount of money in purchases on a regular basis**. By investing regularly, you can get a better average cost effect when it fluctuates, reducing the risk of a single investment.
4.Asset allocation: Allocate funds to different asset classes, such as bonds, real estate, etc., to reduce the impact of drawdowns on the entire portfolio. At the time of retracement, the performance of other asset classes is likely to be relatively stable.
5.Pay attention to market sentiment: Market sentiment has a big impact on retracement. When the market sentiment is pessimistic, there may be more. Therefore, it is necessary to pay close attention to market sentiment indicators, such as investor confidence index, etc., and combine them with other analysis to judge the trend of the market.
6.Long-term planning and goals: Drawdowns are part of short-term volatility, while long-term investments are the only way to achieve better returns. Set long-term plans and goals and avoid paying too much attention to short-term market fluctuations to stay calm and rational.
7.Learning and education: Continuously learn and improve your investment knowledge and skills, understand the advantages and disadvantages of different investment strategies, and learn from the experience of others. Attending investment training courses, reading books and articles, and networking with other investors can help improve your ability to deal with drawdowns.
8.Set a stop loss level: When buying**, you can set a reasonable stop loss level. When *** falls below the stop loss level, it is automatically sold ** to limit losses.
9.Timely entry and exit: In the market, timely entry and exit is also the key to dealing with the drawdown. Buying at the low level and at the peak can reduce the losses from the drawdown.