ET Knowledge Sharing | Why do you suddenly stop making money using the trading methods you have used for many years?

Many experienced traders will use technical analysis as the core basis for trading decisions, but few people know that technical analysis also has clear failure scenarios.

Its failure is often not due to an error in the method itself, but rather to the fact that the environment in which it relies on has quietly changed.

So, under what circumstances will technical analysis obviously lose its reference value? Today EagleTrader
Let’s make it clear once and for all. By understanding these, you can better protect your principal and improve the stability of long-term transactions.

Three core scenarios of technical analysis failure

1. Method failure: Under market evolution, excess returns are continuously compressed

The essence of why a technical strategy can be profitable lies in capturing information asymmetry or participant behavioral deviations. However, as the number of participants increases and competition intensifies, the market as a whole shows a trend of periodic efficiency improvement, and the excess returns of the original strategy will be continuously compressed. The more people use it, the weaker the advantage, and some strategies will even gradually lose their stable profitability.

What is more easily overlooked is that many classic technological theories were born in an era of relatively limited information. Real-time push of current market conditions, highly transparent data, and AI
In an environment where tools are popularized, the information gap advantage that it relies on for survival has been significantly weakened. It is unrealistic to still expect it to replicate the excess returns of the historical period.

2. The subject matter fails: the trading subject matter is mismatched, and the signal no longer has statistical significance

Technical analysis is not “universal for all subjects”. The premise for its establishment is that there are enough participants in the market to form a relatively stable group behavior rule.

When the underlying liquidity is insufficient and the position structure is concentrated, the price is more likely to be affected by the behavior of a single or a small number of funds. The heavy volume breakthroughs or morphological structures seen at this time may reflect more price fluctuations under liquidity constraints rather than broad market consensus, and the statistical validity of technical signals will be significantly reduced.

Therefore, technical analysis is usually more suitable for mainstream products with high liquidity and high participation such as EURUSD, gold, and crude oil; while in niche crosses or unpopular commodities with poor liquidity, the probability of failure will be significantly increased if you rely solely on technical signals for trading.

3. Market failure: sudden changes in underlying logic, short-term failure of historical laws

Sudden black swan events, central bank policy shifts, escalating geopolitical conflicts and other major variables may change the operating logic of the market in a short period of time, causing the laws based on historical data summary to be temporarily lostReference value.

In this environment, common manifestations include signal distortion, abnormal trends, and situations where “it should rise but not fall, and it should fall but not fall.” If you still implement the existing strategy mechanically, you are essentially participating in transactions using logic that is no longer suitable for the current environment.

Core response ideas for the three types of failure scenarios

For the above three types of failures, the core response logic can be summarized into three points:

The first is to anchor the underlying profit logic of the strategy, build a multi-strategy or multi-logic combination, and set clear failure judgment standards to distinguish between phased retracements and structural failures, so as to adjust or exit in a timely manner;

The second is to establish a target screening mechanism, give priority to market environments with high liquidity, high participation, and relatively dispersed structures, and improve signal reliability through multi-dimensional verification;

The third is to pay attention to changes in the market environment. You need to pay attention to current news on a daily basis. During periods of extreme or significant increases in uncertainty, proactively reduce positions or temporarily wait and see to control overall risk exposure.

How individual traders implement it

According to the response ideas, it can be seen that the failure of technical analysis itself is not inevitable, but through strict trading discipline, failures can be identified in advance to a large extent, risk exposure can be controlled, and strategic environments that are no longer applicable can be exited in a timely manner.

But the problem is that this logic requires extremely high execution capabilities. In real trading, it’s not that many people don’t know how to deal with it, but that it’s difficult to maintain consistent execution standards for a long time under continuous losses, market fluctuations or emotional interference.

Therefore, relying solely on personal self-discipline may be difficult to achieve stably. In this case, introducing an external constraint mechanism has become a more feasible path.

For example, the proprietary trading examination uses clear drawdown limits, trading rules and risk control boundaries to transform behaviors that originally relied on subjective control into objective constraints that must be observed.

Judging from the results, this does not affect the trading method itself, but through rule constraints, it helps traders to stop in time when the strategy fails and proactively control risks before they expand, thereby improving the stability of the overall transaction.

The essence of the failure of technical analysis is that the market is constantly changing; and the core of trading ability is not to master how many methods, but to be able to keenly discover that the method has failed and have the ability to exit in time.

If you are tired of being on tenterhooks every time you place an order, fearing that retracement will swallow up funds, you may wish to carefully understand the assessment rules of domestic self-operated platforms, and let self-operated trading help you relieve the burden of financial pressure. If you want to know more about proprietary trading, you can tell me in the comment area!