According to observations and records, there are some general principles and properties of financial markets as follows. You are free to add more principles if you see fit.

1. The market is just a conventional product of people, there is no separate market entity and this convention is built on other conventional concepts such as stocks, accounts, exchange rate,... According to Dao Trading's point of view, the financial market is a customary law with no real nature, so market members often work in the environment of concepts, concepts, and ideas It is very easy to be immersed in illusions, away from real life.

2. The market has human characteristics: The market fluctuates due to the interaction of all thoughts and emotions among market participants, so it has many human characteristics and is very unpredictable. On the other hand, different financial products often have different trading "personalities" (depending on the house's personality) regardless of the increasing application of automation.

3. The market is always right: About 100 years ago, J. Livermore declared this historic quote showing that he always respects all market fluctuations, just as it is. at a time. Later there are some who have a different view that the market is not always right when compared to value, is driven by crowd psychology, or is misleading by illiquidity, etc. but that is only a comparison with the computational analysis of individuals or organizations, not the market itself.

4. Irrationality: The market always moves on its own accord, and you can't use mathematical reasoning to predict its reaction. When you spot market moves, you just follow them without knowing why.

5. The trend is your friend: The trend that manifests the herd instinct of people in the financial markets. When the market has chosen a direction, the crowd has been led, you follow. The more you understand the value of the trend, the easier your trading job will be.

6. Inertia: The market tends to continue in an existing state (trending or non-directional) until an unusual influencing factor changes that state. The human mind, once attached to something, is often difficult to change without a shocking event that releases it.

7. Pitfalls: Market pitfalls are inevitable, because that's how people win each other's money. When choosing this career, you need to determine to live with the flood, fully accepting the ambiguity and uncertainty but always be alert. According to Ed Seykota, the only way to avoid losses due to pitfalls is to quit this trading profession.

8. Price is a concept: The market price is formed through an auction method. Those who want to sell at any price, put it up, if it is suitable, there will be buyers and every time the price is created. so price is really just a concept, not a product value. A trader buying or selling a financial product only needs to know that if buying, the price is likely to increase further to take profit and selling, is the price likely to fall further to take profit?

9. Price is the language of the market. Prices always change by the impact of each player in the game, depending on economic news, political developments, ... and depending on their emotional attitude. However, most decision makers ultimately look at market prices, so the market can be said to have a single language: price. We should study and listen to direct advice from the price.

10. Wyckoff's Three Laws: These Fundamentals by R.D. Wyckoff observes the changing realities of the market (applies to securities):

  • The law of supply and demand: The law of supply and demand determines the direction of prices. When demand is greater than supply, price will increase and when supply is greater than demand, price will decrease. By using graphs, traders can see supply and demand relationships through price and volume over time.
  • The law of cause and effect: the law of cause and effect helps to predict the degree of rise and fall of the upcoming price trend. Every effect that happens has its cause and that effect will be proportional to the cause. Specifically, we see that the accumulated energy of a non-directional price zone will be converted into a trend after breaking out of that zone and can estimate the strength and weakness of that trend. The spike in supply and demand did not happen by accident, but by the influence of certain important events or just the result of a silent preparation process in advance. Technically, this rule manifests itself through a concentrated candlestick area on the chart.
  • The law of effort versus result: The law of effort versus result helps to recognize early warning signs of an impending trend movement. Price movements are the result of market interactions expressed through volume, so a divergence between price and volume often signals a change in trend direction. This law manifests itself in candlesticks and technical volume.

Taken together, the three Wyckoff laws indicate the intention of the house (the market dominant), i.e. smart money flow. The law of cause and effect indicates the extent of the house's preparation for the upcoming campaign, while the supply-demand gap indicates the house's intention to prepare the up or down campaign. We can judge impending breakout or reversal action based on the support or asymmetry between price and volume according to the law of rest. It should be remembered that the law of supply and demand is the most basic and governs the changes of the market, while the other two laws help to estimate the influence of supply and demand.