Background
During a discussion about trend investing, someone asked: Is trend investing effective in all market environments? This dialogue starts from the classification of market curves and gradually explores the structural differences across different phases.
Key Concepts
- Scope of this series: Trend investing — not short-term trading or value investing
- Trend Investing: An investment approach based on directional price movements
- Market Curves: Three fundamental operating states - rising, sideways, and falling
- Theme Rotation: The shift of market focus from one sector to another
1. The Premise of Trend Investing
Q: What is the core premise of trend investing?
Response: Price exhibiting sustainable directional movement over a period of time.
Q: Does trend always exist?
Response: No. Trend is a periodic phenomenon, not the market’s normal state.
Q: Does this mean trend investing is highly sensitive to market conditions?
Response: Yes, different market curves have different implications for trend investing.
2. Three Fundamental Market Curves
Q: From an overall structural perspective, what are the typical operating states of the market?
Response: They can be roughly divided into three types: rising, sideways, and falling.
Q: Do these three curves affect trend investing equally?
Response: No, they correspond to entirely different risk structures.
3. Trend Investing in Rising Curves
Q: What are the basic characteristics of a rising curve?
Response: Overall upward price movement with clear trend direction.
Q: What is the most intuitive behavior in trend investing during a rising phase?
Response: Adding positions after confirming the uptrend.
Q: What does this behavior mean structurally?
Response: It means increasing exposure after the trend has been widely confirmed.
Q: Where does the main risk come from during the rising phase?
Response: From trend reversal at the end stage.
Q: Why might adding positions during an uptrend increase risk?
Response: Because the closer to the trend’s end, the faster risk may rise relative to return growth.
Q: From a structural perspective, what problem is most likely to occur during the rising phase?
Response: Treating an established trend as a state that will inevitably continue into the future.
4. Trend Investing in Sideways Curves
Q: What does a sideways curve typically mean?
Response: Overall price oscillating within a range, with unclear direction.
Q: Does a sideways phase mean trends have completely disappeared?
Response: Not necessarily. It may mean the old trend is weakening while a new trend has yet to form.
Q: What structural changes often accompany a sideways phase?
Response: Theme rotation.
Q: Why does theme rotation often occur during sideways phases?
Response: Because the previous upward logic gradually loses effectiveness, but new logic has not yet been universally accepted by the market.
Q: From the perspective of trend investing, what is the significance of the sideways phase?
Response: It is closer to a structural adjustment period rather than a trend expansion period.
Q: What is the cost of frequent trading during the sideways phase?
Response: Being worn down by repeated false breakouts.
5. Trend Investing in Falling Curves
Q: What are the typical characteristics of a falling curve?
Response: Continuously declining prices with decreasing market risk appetite.
Q: Can a falling phase mean new opportunities?
Response: Sometimes it means the end of old themes, and possibly the incubation period for new ones.
Q: What is the most common misjudgment during a falling phase?
Response: Mistaking a bounce during a decline for a trend reversal.
Q: If the falling trend persists, what is the safest structural position?
Response: Reduce exposure and maintain observation.
Q: Why is it unsuitable to force participation during continuous decline?
Response: Because the main direction of price movement is opposite to trend investing’s assumptions.
6. The Relationship Between Theme Rotation and Position Adjustment
Q: In which phases does theme rotation typically occur?
Response: More likely to occur during falling or sideways phases.
Q: Why not during the rising phase?
Response: Because during rising phases, attention is usually concentrated on existing winners.
Q: Structurally, what are falling and sideways phases closer to?
Response: Closer to phases of position reallocation and new theme evaluation.
Q: Does this mean action must be taken during falling phases?
Response: It doesn’t mean action itself, but rather the need for reevaluation.
7. Core Structural Differences Under Different Curves
Q: Looking only at risk structure, what is the biggest difference among the three curves?
Response: In rising phases, risk concentrates at the end. In sideways phases, risk concentrates in repetition. In falling phases, risk concentrates in systemic diffusion.
Q: What does trend investing really need to determine?
Response: Not whether prices are fluctuating, but what type of curve the market is currently in.
Q: If summarizing the core difficulty of trend investing in one sentence?
Response: Under different market curves, avoid treating the same behavior as a universal strategy.