Teach you how to trade stocks 16: Efficient buying and selling methods for small and medium funds.

Content

In the previous chapter, it was mentioned that the trend chart of any variety in any market cycle can be decomposed into three basic combinations: rise, fall, and consolidation. Rising and falling constitute trends. How to judge trends and consolidations is the core issue in trend analysis. One fundamental issue is that trends are hierarchical. An uptrend on a 30-minute chart may only be a consolidation or a rebound within a downtrend on a daily chart. Therefore, discussing trends and consolidations without considering the hierarchy is meaningless and must be grasped effectively. Note that the discussions below and earlier, unless specifically stated, are conducted at the same hierarchical level. Only when the matters at the same level are understood can different-level trends be combined for further analysis, which will be discussed later.

Three basic trends of rise, fall, and consolidation, there are six possible combinations representing three different types of trends:

Trap type: Rise + Fall; Fall + Rise. Reversal type: Rise + Consolidation + Fall; Fall + Consolidation + Rise. Continuation type: Rise + Consolidation + Rise; Fall + Consolidation + Fall.

The market trends can be decomposed and studied through these three types of trends. From a bullish perspective, the following are the six most basic trends with buying value: decline + rise, decline + consolidation + rise, rise + consolidation + rise. The trends without buying value are: rise + decline; rise + consolidation + decline; decline + consolidation + decline. It is easy to see that if buying during a downtrend, you will only encounter one trend without buying value, which is decline + consolidation + decline, which is one less scenario than buying during an uptrend. When buying during a downtrend, the only risks to avoid are: 1. The downward trend is not over; 2. Even if the downward trend is over, the next round of decline appears after consolidation.

In the previous chapter, without a trend or divergence, use divergence to find the first type of buying point for the downtrend, which is to avoid the first risk above. And once bought, the second risk to face is how to avoid it? Once a consolidation trend appears, you must first reduce your position and exit. Why not exit completely? Because after consolidation, there are two possible outcomes: rise or fall. Once a decline occurs, it means a loss, and consolidation also takes time, which is completely unnecessary for medium and small funds. There is a very important question left for later analysis here, which is how to judge whether the consolidation after is a rise or a fall. If you grasp this skill, you can decide whether to reduce your position and exit or use the consolidation to dynamically build a position based on this judgment. This is a major issue, especially for large funds that do not want to act as market makers. This is the most important issue because the safe positioning of large funds that do not want to act as market makers can only occur in one of the six trends: decline + consolidation + rise, and none of the others are applicable. As for the positioning method for market makers, it is different from all of these. If interested, this ID can also discuss it later.

Based on the analysis above, an effective buying and selling method can be designed immediately: after buying at the first type of buying point, once a consolidation trend appears, exit immediately regardless of what follows. The essence of this buying and selling method is to only participate in one of the six most basic trends: decline + rise. For those with small capital, this is the most effective buying and selling method. The following will focus on analysis:

For the combination of decline + rise, there are only two possible trends following a decline: rise and consolidation. If it is rise + decline + rise, it means that this trend is a consolidation in the higher-level chart, so this trend can be classified as part of consolidation operations, which will be studied in future specialized analysis of consolidations. In other words, for those who only trade 'decline + rise', the trend of 'rise + decline + rise' is not considered. In other words, when you want to use the 'decline + rise' trading method to enter a stock that has shown a first type buying point, if the preceding trend is 'rise + decline', it is not considered. Note that not considering does not mean that this situation has no profit potential, but rather that this situation can be classified as a consolidation type of operation, but the 'decline + rise' trading method refuses to participate in consolidations. Consequently, following this method, the number of stocks that can be selected is reduced, leaving only one such situation, which is 'consolidation + decline + rise'.

From the above analysis, it can be clearly seen that for the 'falling + rising' trading method, it must be such a situation: that is, a trend of 'consolidation + decline' appears as the first type of buying point after a previous trend. Obviously, this decline breaks through the previous consolidation, otherwise it will not constitute a 'consolidation + decline' type, but will still be consolidation. So in the trend before this consolidation, there are only two possibilities: rise or fall. For 'rise + consolidation + decline', it also essentially forms a higher level of consolidation, so for the 'falling + rising' trading method, it cannot participate in this situation, leaving only one situation: 'falling + consolidation + decline'.

In summary, for the 'falling + rising' trading method, there is only one situation for stock selection: when the first type of buying point appears and the previous trend is 'falling + consolidation + falling.' Therefore, the standard procedure for selecting securities using the 'falling + rising' trading method is as follows: 1. First, only select those with the 'falling + consolidation + falling' trend. 2. Intervene when the first type of buying point appears in the second falling segment of this trend. 3. Once intervened, resolutely exit when a consolidation trend appears. Note that this exit will definitely not lose money because you can use the first type of selling point at a lower level to exit, ensuring a profit. But why exit? Because it does not meet the standard of the 'falling + rising' trading method, which does not participate in consolidation. Consolidation is a waste of time, and there is a 50% chance of falling after consolidation. For small and medium-sized funds, it is simply unnecessary to participate. Remember, operations must be carried out according to the standard, as this is the most efficient way. If there is no consolidation after buying, then congratulations, as the stock will at least rebound to the consolidation area of 'falling + consolidation + falling.' If this trend appears on the daily or weekly chart, the possibility of it developing into a dark horse is quite significant.

Give an example:

Chihong Zinc and Germanium: On the daily chart, from June 2, 2004 to September 10, 2004, it formed a downtrend; from September 10, 2004 to March 14, 2005, it formed a consolidation trend; from March 14, 2005 to July 27, 2005, it formed a downtrend. In other words, from June 2, 2004 to July 27, 2005, it formed a standard 'downtrend + consolidation + downtrend' trend. During the second downtrend from March 14, 2005 to July 27, 2005, an obvious first type buying point appeared on July 27, which perfectly formed the standard buy signal of 'downtrend + uptrend' trading method. Subsequently, the trend quickly returned to the consolidation range from September 10, 2004 to March 14, 2005, and then a standard second type buying point appeared on December 8, 2005, followed by the trend which needs no further explanation.

This method is in turn a good way to choose selling points, that is to say, when the trend of 'rise + consolidation + rise' appears in the front, once the second upward trend shows the first type of selling point, you must leave, because it is very likely that the typical trend of 'rise + fall' will follow. In this regard, let's also take an example: Beichen Industry, on the 30-minute chart, from 10:30 on November 7th to 10:00 on November 22nd, formed a rise; from 10:00 on November 22nd to 11:00 on November 30th formed a consolidation; from 11:00 on November 30th to 10:00 on December 7th formed a rise. And in the second rise, the three red bars on the 30-minute chart are enlarged, showing a serious divergence, one shorter than the other, perfectly forming the 'rise + consolidation + rise' followed by the first type of selling point 'rise + fall' sell-off. If you have learned the concept of the time window later, you will have a better grasp of the selling points of the stock, pay attention to the relationship between 10:30 on November 7th and 10:00 on December 7th.

This method is extremely suitable for small and medium-sized funds, whether buying or selling. If mastered well, it is very efficient. However, you need to look at the charts more, carefully understand, and turn it into your own intuition. Also, please read the comments behind the article more. Some of the replies from the IDs are addressing details that were not covered in the main post, and they are all in response to different questions raised by everyone. Also, read the previous chapters more, understand all the issues, and there should be no confusion when participating in the market.

Reply

Only show replies from Chan Shi

2006/12/14 12:14:34

This method is very effective, study it well. Also, please read the comments behind the article more. Some of the replies from the ID address details that were not covered in the main post, and they are all in response to different questions raised by everyone.

Chánzhōng shuō chán 2006/12/14 12:28:10

[Anonymous] Fast

2006-12-14 12:24:34 LZ, is it more suitable to have a diversified or concentrated position at the current point, with around 500,000 funds?

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At most, do not exceed 3. With your kind of capital, mastering this method, using a 30-minute chart or daily chart, if you cannot achieve a profit of less than 300% in a year, then that is considered very poor.

'Chan in the Wrappings Talks of Zen 2006/12/14 12:34:06 '

Yesterday's homework was mainly about making sure everyone understands how to use MACD to identify divergence. It's not about comparing the length of the bars, but it must be combined with the trend. Remember, no trend, no divergence. Understand this sentence well. Divergence only makes sense when comparing between two trends, it's useless to compare within a consolidation.

Yesterday, none of your answers were correct. After reading today's article, please continue the analysis using 580991, combined with today's method. Just a reminder, there is only one divergence point on the daily chart, meaning there is only one first type buying point. It's easy for this ID to give out the answer, but it's more effective for you to discover it through your own research, so you can have a deeper understanding.

The final answer will be announced tomorrow.

注意这一点

Riding against the trend only makes sense when comparing between two trends, it is useless to compare within a consolidation.

Chánzhōngshuōchán 2006/12/14 12:38:11

[Anonymous] ataoo0

2006-12-14 12:31:06 Chan Zhong Shuo Chan 2006-11-29 15:14:38

From the perspective of the overall market health, this ID's suggestion for the market is: let the Shenzhen Component Index break through the historical high of 6103 points first, then Shanghai follows suit, after the breakthrough, there will be a correction, which is healthier. I wonder if the market is interested in listening to this ID's opinion.

OP, do you think the market has followed your advice?

Actually, it doesn't matter who breaks through first between Shanghai and Shenzhen. The current market is only in the first stage of a bull market. The key is to maintain a good mindset. Don't panic just because the market fluctuates a bit.

This ID repeats a sentence that has been said before: in a bull market, the dip is the father.

Still need to seriously reiterate: the main force in the first stage is constituent stocks, see if it rises by 1000 points, is it like this!

Chánzhōngshuōchán 2006/12/14 12:39:41

[Anonymous] Ah Q

2006-12-14 12:35:12 Sister Chan, can you talk to us about the reasonable allocation of funds? For example, how much to use when opening a position, how much to sell at the first selling point, how much to add when increasing the position, and whether it is necessary to sell all when selling in the end? I find it quite difficult to grasp this aspect. Thank you!

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These issues all naturally need to be mentioned, the key is to understand the basic methods. Now it seems that even the basics are not clear.

No trend, no divergence. Divergence only makes sense when comparing between two trends, it is useless to compare within a consolidation.

Understand it well.

Chánzhōngshuōchán 2006/12/14 12:45:06

[Anonymous] nn

2006-12-14 12:36:19 Thank you, the host. The host has worked hard. I would like to ask a question. Is it necessary to distinguish between small and large funds in terms of batch (or distribution), that is, the issue of position management? Can office workers efficiently utilize funds as you mentioned? Compared to the host's method, I can only wait passively, far from being efficient. Thank you for your guidance!

Place the translated text here

'Chan in the Wrappings Talks of Zen 2006/12/14 12:46:38 '

[Anonymous] Intertwined Unconsciously

2006-12-14 12:44:49 Giving people a fishing rod is better than giving them fish

How can we identify trends? By looking at candlesticks?

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You need to thoroughly review the previous research. This issue was already explained very clearly in 15. If you missed a big chunk of the previous lessons, how can you keep up now.

Chánzhōngshuōchán 2006/12/14 12:55:55

[Anonymous] No words

2006-12-14 12:54:08 Chan Jie, hello, when the first type of buying point appears on the daily chart, the candlestick patterns all look very ugly. How can one determine the strength of the medium-term trend of the stock? Is it by looking at the positions of various moving averages on the weekly chart? Could you explain in detail? Thank you

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This issue will be discussed later, first study this method thoroughly. Whoever masters this method, 95% of people are no match for you.

'Chan in the Wrappings Talks of Zen 2006/12/14 13:00:04 '

[Anonymous] Heart Easy

2006-12-14 12:55:56 580991 The analysis of the first type of buying point on the daily chart is as follows: around 0.50 yuan on October 23. Please correct me if I'm wrong. Thank you!

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Now ask how you can tell the divergence, this is the key, there is a divergence to have the first type of buying point, clarify the logical key.

Open, go down first, see you later

Chánzhōngshuōchán 2006/12/14 13:01:27

[Anonymous] Bright Moon Without Flowers

2006-12-14 12:56:07 The original poster has recently become a stock topic. Even your replies about The Analects are related to stocks. It's really uncomfortable for us stock novices. Could you also consider us a bit?

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Key, you don't mention issues related to the Analects. Look at the front, there are issues related to the Renminbi, and this ID has also answered. You can also raise other questions here.

Summary
The article discusses how market trends can be broken down into three basic patterns: uptrend, downtrend, and consolidation. It emphasizes the importance of understanding trends and consolidations at different levels and how to differentiate between them. The six possible combinations of trends are categorized into trap, reversal, and continuation patterns. The article focuses on a buying strategy for downtrend followed by an uptrend, highlighting the importance of exiting during consolidation phases to avoid potential losses. It also touches on the significance of identifying whether consolidation will lead to an uptrend or downtrend to make informed decisions on reducing positions or building new ones. The article concludes with a detailed buying and selling method for the downtrend followed by an uptrend pattern, emphasizing the importance of adhering to specific criteria for selecting stocks and exiting positions during consolidation phases.