Victor's Trading Philosophy

Success and happiness stem from the fulfillment of one’s potential, coupled with the recognition that mistakes are an inevitable process—even an integral part of life.  

My speculative approach integrates knowledge from a wide range of disciplines, including odds assessment, markets and trading tools, technical analysis, statistical probability, economics, politics, human psychology, and philosophy. It took me ten years (1966–1976) to acquire such knowledge and organize it into a systematic framework.

If there is one fatal flaw in financial trading, it is making investment or trading decisions based on a single event—committing capital without understanding the overall risk. The only way to grasp the full scope of risk is to learn systematic knowledge.

I never rely on a single analytical method to forecast market trends. I always combine technical analysis, statistical methods, and economic fundamentals to assess the risk of any speculative position. Only when these three factors align do I establish significant positions in the market.

Let us view trading from a business perspective. My philosophy is built on three principles, ranked in order of importance: capital preservation, consistent profitability, and the pursuit of superior returns. These three are my foundational principles, as they serve as the supreme guidelines for all market decisions. In my speculative strategy, each principle carries a distinct weight and is interconnected with the others. In other words, capital preservation fosters consistent profitability, which in turn enables me to pursue superior returns.

The Dow Theory classifies trends into three categories: primary trends, secondary trends, and minor trends. Only by truly understanding the meaning of trends can we judge when they shift.

An uptrend consists of a series of successive rallies, each moving upward to breach the previous peak. The intervening downward movements (or pullbacks, to put it another way) never fall below the trough of the prior decline. In short, an uptrend is defined by a sequence of price movements where both peaks and troughs keep rising.

A downtrend is made up of a series of successive declines, each moving downward to break the previous trough. The intervening upward movements (or rallies, in other words) never rise above the peak of the prior advance. In summary, a downtrend is characterized by a sequence of price movements where both troughs and peaks keep falling.

The two key indicators I refer to as signals are line ranges and volume relationships. Any market is necessarily in one of four technical phases:① Accumulation (buying by long-term investors);② Distribution (selling by long-term investors);③ An uptrend or downtrend;④ Consolidation (a pullback after profit-taking within a confirmed trend).

To put it another way, if a market lacks a clear trend, it is in a line (sideways) movement.

A line range is a price movement lasting two to three weeks or longer, during which both indices fluctuate within an approximate 5% price band. This pattern may indicate either accumulation or distribution. When both indices break upward through the upper boundary of the line range simultaneously, it signals an accumulation phase, and prices should continue to rise. Conversely, when both indices break downward through the lower boundary of the line range at the same time, it signals a distribution phase, and prices should continue to fall. A conclusion based on just one index, without confirmation from the other, will usually be erroneous.

In my personal view, we only need to apply a few fundamental technical analysis principles and use them as auxiliary tools. A truly effective system should incorporate rigorous and sound economic fundamental analysis, along with a methodology for evaluating individual securities and commodities, before integrating the essentials of core technical analysis. It is crucial to remember that when using charts to make decisions, technical consistency is optimal over the long term, slightly less reliable in the medium term, and most erratic in the short term.