Technical Reasons For Price Collapse And Related Trading Strategy Building

Since the technical analysis has been borrowed from the West, the idea was widely spreading among the people and professional trading circles. It should be said, because of so many messy genres and methods based on graphics, as well as no accepted instruments, there is few formal academic and systematically conducted research on technical analysisThis paper attempts to locate a little point from the huge, messy technical analysis system and discusses on this point deeply with my own logical system, methods and tools in order to enlighten other researchers.Beginning with clarifying concept, the author gives a relatively accurate target; the object of study being extracted from the trading axiom is a phenomenon that prices continue to fluctuate and strengthen on one-way (also known as price collapse). Next, the paper reviews the theoretical basis about this phenomenon, including psychology and finance. Then, the author extracts four technical reasons, and quantifies them one by one with mathematical tools for empirical test and drawing a program trading system. This is also one of the purposes of this article-making the theories serve the reality and profit.The idea of this paper is from the basic concepts rising to the research system, and then through the empirical research to the practice. The methods and tools used in this paper includes the scientific research methods by Descartes, literature research, the least squares method of measurement test, history back to the test with transaction procedures, Eviews and pyramids program trading platform.Although this article makes a lot of innovative arguments and technical indicators, and gives a profitable automated trading model, but the author believes that the main contribution of this paper is giving clearer definition and clearance to the technical analysis. The author insists that a precise positioning target is very necessary and critical for scientific research, for clear aiming makes it possible to find effective research ideas and find new tools. On this basis, this paper attempts to provide a more complete scientific technique of technical problems study, and I hope the research of others also helped.After the study, this paper argues, there is a pattern on minute level of price collapse In the technical point of view. For the collapse has its basis of cognitive psychology and market microstructure, it is bound to repeatedly appear on the market, and retain a long-term existence. From a technical perspective, this paper dig out four factors that influence this phenomenon, and through empirical testing, the author found that the effect of the four factors in different time periods are not the same. Finally, historical back-testing of the trading program proved that price collapse phenomenon can be exploited in order to make profit.