Technical analysis is predicated on three important assumptions:

1. Prices reflect everything (the foundation)

2. Price movements follow patterns (the core)

3. History tends to repeat itself (psychological factors)

Many investors do not look at the fundamentals at all. Can they invest? Yes, they can.

This is because, among the three premises of technical analysis, the most important one is that prices reflect everything. This means that everything is encapsulated within the candlestick charts; one can be ignorant of other details, such as how the company's management is performing, what the profitability is like, or whether it is a junk stock—it doesn't matter.

By studying and analyzing the candlestick charts and their price trends, I can glean the information they contain.

1. Prices reflect everything

Therefore, I strongly agree with the statement "prices reflect everything" and acknowledge the role of technical analysis, but I combine the strengths of both fundamental analysis and technical analysis. The principle that prices reflect everything is the foundation and the premise; one must first accept this before proceeding to discuss and apply technical analysis.

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If you argue that the candlestick charts or prices do not encompass all content, and their trends do not include other aspects, then technical analysis has become ineffective, and your research would be futile. Thus, the first step in technical analysis is to acknowledge and accept that prices reflect everything; this is the foundation.2. Price fluctuations follow patterns

The notion that price fluctuations follow patterns is at the heart of our technical analysis. There are some people in the market who hold a negative view of technical analysis, arguing that the market is a random walk without any discernible patterns. In fact, I personally do not agree with this perspective.

Let me give a simple example: when a high-speed train is approaching a station, it must start to brake before it enters. From the moment it begins to slow down, it cannot stop immediately; neither people nor the train can withstand such abruptness. There must be a gradual deceleration process until its acceleration becomes zero.

The phrase "Investing is about grasping the certainty within uncertainty" encapsulates a viewpoint that I have always adhered to, which is a phenomenon from physics. When its momentum weakens and gradually diminishes to zero, that phase represents a trend. Thus, the trend is about this phase, and it is patterned.

In reality, we can all sense that the more finely you observe a specific point, the greater its fluctuations appear. For instance, when you monitor the market in seconds, it is often difficult to grasp these fleeting small changes. However, when you extend your observation to intervals such as 5 minutes, 15 minutes, or even half an hour or an hour, the pattern often emerges, meaning the trend can be clearly demonstrated.

Therefore, when we study the patterns of price fluctuations, we often take into account the cyclical nature.

When I trade intraday, for example, when I consider time frames, I first look at 15-minute and half-hour intervals to see if the trend is in an upward or downward cycle within that period. If I am trading at the 15-minute level, I must at least look at the hourly or 30-minute level. If I am trading intraday, I should at least examine the weekly or monthly trends of the investment, as higher-level trends often influence lower-level trends.

So, when the overall trend is downward, if you insist on going long, you can only do it for a very short time, a brief period. Unless the trend is reaching its end, approaching the extreme point—the inflection point, that's another matter. But generally, during a downtrend or an uptrend, your mid-cycle entry must follow the trend, which is why I have been emphasizing the importance of trend-following trading. It's not about waiting for the exact point; rather, following the trend makes success more likely.

In a certain trend segment, if you enter in the middle and follow the trend, you will only be wrong once, and that is at the extreme low point or the peak high point. However, if you are trading at the extreme points, each entry could potentially become a continuation point in the downtrend or the uptrend, increasing the number of mistakes significantly. Thus, the significance of following the trend is substantial.

Therefore, price fluctuations have trends and are patterned. Hence, the regularity of price changes is the core of technical analysis.3. History will continue to repeat itself

The reason why this statement is considered a crucial premise in technical analysis is primarily due to the factor of human nature. Why does history repeat itself? Despite the fact that the level of technological development in the past was not as advanced as it is in later periods, history still tends to repeat itself. This is mainly because the participants, the people involved, remain the same.

It is human nature—unchanging aspects such as greed and fear—that drive this repetition. Therefore, no matter how much technology advances, as long as humans are involved in the market, psychological factors and their patterns are inevitable, leading to the continuous reenactment of history.

When there is a significant uptrend, people rush in, and soon after, a peak is likely to be reached. Conversely, when everyone is extremely pessimistic, distances themselves from the market, and even stops inquiring about it for a long time, it is often when a bottom is forming. These patterns are repeatedly seen in the market over and over again.

It is the same today, it was the same yesterday, and it will be the same in the future.

One point that needs to be emphasized is the impact of the increasing involvement of quantitative trading, also known as algorithmic trading, in the market. For instance, the major stock market crash in 2015, or the significant market decline that year. The reason for suspending stock index futures was that they can influence and lead the spot market.

The stock index futures market allows for intraday buying and selling, and the participation of machines through algorithmic trading in place of humans increases market volatility, affecting the stability of the financial market, especially the stock market.

In that situation, the regulatory authorities later took timely action, akin to "mending the fence after the sheep have been stolen," by closing the stock index futures market, which has not been reopened to this day. While stock index futures can be bought and sold on the same day, our stocks operate on a T+0 basis. Under such circumstances, it is particularly unfair to retail investors, especially those participating in the stock market, particularly retail investors.

Therefore, if stock index futures are ever resumed, the market's risk will increase.Originally, stock index futures are supposed to play the role of a stabilizer. When your stock price rises, I deviate from my value, and I need to sell it off, leading through stock index futures to suppress it. In fact, the Chinese market is just the opposite, why is that? T+1 can be infinitely high, and why can it be infinitely shorted downwards? Of course, I am making this conclusion within the scope of a 10% limit on price fluctuations, so it actually plays a role in exacerbating or aiding the fall. On the contrary, this tool is not conducive to stabilizing market fluctuations or deviations from fluctuations.

Therefore, the future relisting and restart of stock index futures must pay attention to the market investment. If the market conditions are good at the time, or the prices are high, it is important to reduce positions. And when the market is extremely low, it is precisely a good time to start stock index futures.

Due to the management's consideration that the entire market has not been fully matched and has not been implemented, we will only prevent it from being high because shorting is easier than going long, because you can only profit from going long in stocks, while stock index futures can also profit from shorting, so it is not matched.

This is what we just talked about using stock index futures as an example, and this entire history will be repeated.

In the past, after a significant rise, there would be a fall, and after a significant fall, there would be a rise. This kind of historical fluctuation will continue to be repeated. It also includes a point, such as the inflation we talked about before in fundamental analysis. Once inflation is too high, or when there is too much liquidity, we must prevent interest rate hikes or tightening in the stock market, which will suppress stock prices.

So regarding the three prerequisites of technical analysis, the third point that history will not repeat itself is mainly considered from the psychological level of market participants.

Summarize these three points: one is that price reflects everything, which is the foundation; price changes have patterns, which means that trends are the core of our technical analysis; history will repeat itself, which is interpreted from human psychological factors. These constitute the three prerequisites of technical analysis.

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