Teaching You to Trade Stocks 39: Further Study of Same-Level Decomposition
2007/3/23 15:16:51
Stocks are just pieces of paper — who's afraid of not being able to buy paper when you have money? Therefore, for any operation, as long as you sell at a profit, there's no such thing as a mistake. Conversely, stocks are blood-sucking vouchers — without them, at least in the stock market, you truly can't suck any blood. So as long as you can buy back at a lower price after selling, there's no mistake either. As for the possibility that it may still rise after you sell, or still fall after you buy back — that's a matter of technical precision. It's like practicing sprints: if all you ever do is run with flailing legs, you can never reach a high level. Basic training is tedious — even for the 100 meters, every section — how to run it, how many steps — may need to follow mechanical requirements, eventually forming a rhythm. Only then is reaching a high level possible. Stock operations are the same — first you must cultivate this kind of rhythm. This doesn't rule out the possibility that during this cultivation and training process, your initial speed might be slower than before when you just ran with flailing legs. But persist, and once the rhythmic sense forms, the progress will be incomparable to flailing.
In the last lesson, I described a mechanical operating procedure. This establishes a basic rhythm, the most important being the rhythm of buying-first-selling-later in upward segments and selling-first-buying-later in downward segments. If even this rhythm is wrong, operations become a complete mess. Many people's trading is essentially gambling on the weather — they buy and bet on either direction, paying no attention to position, timing, or current trend structure, randomly buying and then randomly selling. Once the big rhythm is grasped, there's still the rhythm of operations within each small segment of each upward and downward movement. Obviously, if even one step goes wrong, the dance steps are ruined. At that point, the only correct choice is to stop operating and first adjust your mindset and rhythm before continuing. Moreover, as you continuously operate according to this mechanical rhythm, your body's biological rhythm will gradually develop a response — you may even reach the point where, when a chart pattern requiring action appears, you get an almost physiological sense. This isn't mystical at all — just like some people, no matter how late they sleep, will automatically wake up at a certain time every morning. Stock operations have a certain degree of tension, and same-level trend type decomposition has a roughly periodic rhythm, so over time, it's not at all strange for the body to naturally react.
Note: The following analysis will probably make at least those unfamiliar with mathematical reasoning thoroughly befuddled, so please prepare paper and pen first and draw along to understand it clearly.
Under same-level decomposition, even more extensive and precise operations are possible. For a 5-minute same-level decomposition, take the most typical a+A as an example. In the general case, a is not necessarily a 5-minute level trend type, but through combination operations, it can always be made so that in a+A, a is a 5-minute trend type, and A decomposes into m segments of 5-minute trend types, so A = A1+A2+...+Am. Consider the case where a+A is upward. Obviously, Ai is downward when i is odd and upward when i is even. Initially, A1 and A2 appear, and A1 must not break below a's low point. If A2 breaks above a's high and A3 doesn't fall back below a's high, then a+A1+A2+A3 can be treated as a new a', still a 5-minute level trend type. Therefore, we can generally consider the case where A3 breaks below a's high point — in this case, A1, A2, A3 necessarily form a 30-minute hub. Thus, the general a+A situation always boils down to a being a 5-minute trend type with A containing one 30-minute hub.
Define a as A0. Then Ai and Ai+2 can be continuously compared in terms of force, using the consolidation divergence method to determine buy/sell points. This is similar to the previously discussed method of oscillating around a hub, but that wasn't based on same-level decomposition. Note that in actual operations, the next Ai+2 is generated in real-time, but this doesn't affect the same-level unique decomposition of all preceding Ai+1. This mechanized operation can continue indefinitely — the hub can expand from 30-minute all the way to daily, weekly, or even yearly — but this operation ignores all that and only cares about one thing: whether Ai and Ai+2 show consolidation divergence. If there is consolidation divergence, sell when i+2 is even, buy when i+2 is odd. If there isn't, when i is even and Ai+3 doesn't break below Ai's high, continue holding until Ai+k+3 breaks below Ai+k's high, then sell at Ai+k+4 that fails to make a new high or shows top consolidation divergence, where k is even; when i is odd and Ai+3 doesn't break above Ai's low, continue staying out until Ai+k+3 breaks above Ai+k's low, then buy back at Ai+k+4 that fails to make a new low or shows bottom consolidation divergence.
After reading the paragraph above, at least 90% of people's hearts are racing and their heads are spinning. But there's no way around it — this is the most precise expression. Drawing along should make it not too hard to understand. The greatest feature of the above method is that, based on same-level decomposition, it essentially classifies charts into two categories: one is "when i is even, Ai+3 doesn't break below Ai's high" or "when i is odd, Ai+3 doesn't break above Ai's low"; the other is "consolidation divergence between Ai and Ai+2." Different operating strategies are adopted for these two situations, constituting a mechanized operating method.
Appendix:
Nothing much to say about today's market. The bloody battle of Thursday and Friday was pre-announced on Wednesday. Today, Bank of China deliberately showed weakness to deny the traitors any opportunity to dump shares on good news, leaving great room for future market development. But the traitors won't be deterred by these two days of turmoil — the line connecting the two high points is still above. Until it's effectively broken, sentiment will remain jittery and the traitors will strike at any moment. So patience is most important, and oscillation is the best way to stabilize confidence.
As for individual stocks, I can't say specifics — there have been too many snitches lately, which happens to be the traitors' forte. Anyway, those five sectors mentioned before, plus the recently mentioned tourism, tech, and the like, will all perform in succession. In the field of melons and plums, this ID won't say too much — everything said is just dream talk, nothing more.
Replies
缠中说禅 2007/3/23 15:23:50
[Anonymous] 钢股份
2007-03-23 15:19:26
Your Majesty!! Lost a fortune — the traitors are so incompetent, I freed up capital for nothing and didn't catch a single one!
Your Majesty is ruthless enough — Beijing Tourism didn't even give me a chance to build a position!!
[Anonymous] CCTV
2007-03-23 15:19:53
Little sister, your 000802 is incredible, and 777 is pretty impressive too.
=
This ID only talked about going to Beijing Tourism in a dream. Woke up and realized I'm already in Beijing. What Beijing Tourism? This ID knows nothing about it — currently striking against market makers. This ID doesn't have the ability to be a market maker. This ID only talks in dreams here — nothing has been said.
缠中说禅 2007/3/23 15:27:33
[Anonymous] 新年好
2007-03-23 15:22:35
[Anonymous] 大盘
2007-03-23 15:17:25
For us small retail investors, I find that if you don't want to miss even 2-3% ultra-short-term spreads, you have to consider the T+1 factor when buying. Especially after 2:40 PM, when a third-type or second-type buy point is approaching (a bottom divergence segment has appeared) but hasn't completely played out. If you buy the next day, even though it rallies big, there might be a notable pullback low point the following day. If you buy on the same day, you're afraid the third-type buy point hasn't truly formed and it continues to explore back into the previous hub. Yesterday and today's performance of 600178 is exactly the example I'm describing.
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I share the same question as classmate "大盘." Today I kept adding at each low point, which made my cost a bit higher, but it's still better than missing out entirely.
==
Unless you buy at the absolute lowest point, there will always be times you're temporarily underwater. As long as the general direction is right, there's no problem. If you're worried, split it into two orders — then there's nothing to fear.
缠中说禅 2007/3/23 15:33:09
[Anonymous] 塔
2007-03-23 15:28:39
Boss, 601333 which was positioned since its listing has come in handy today!
Chan Theory tells us — 601333 broke above its all-time high on heavy volume.
Classmates, charge!!!!!!!!!!!!!!!!!!
==
There are plenty of weapons against the traitors. Others that were very bullish last year but had severe corrections these past few months will also move. That's why I said earlier — you can't just speculate on third-tier stocks. The relative valuations are right there; using fake news to manipulate is essentially helping the traitors.
However, retail investors don't necessarily need to buy index stocks since they're relatively slower. Pay more attention to second-tier stocks around 10 yuan — as long as they've consolidated enough and show signs of renewed momentum, they're all worth watching.
缠中说禅 2007/3/23 15:34:21
Yi Tong Liu
2007-03-23 15:30:38
First time reaching the front page while teacher is here — greetings to teacher!
Diligently observing, listening, learning, and practicing!
=
Good.
缠中说禅 2007/3/23 15:38:46
[Anonymous] 缠迷
2007-03-23 15:29:56
Dear sister Chan, I'm a beginner. Was the point at 13:25 today on the 5-minute level a divergence? Thank you.
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No, it was a smallest-level divergence, followed by a symmetric movement pulling back to the hub, which can be viewed as a small-level oscillation of the original hub.
缠中说禅 2007/3/23 15:40:49
[Anonymous] 新手却是老粉丝
2007-03-23 15:33:36
Hello! I come here to read almost every day, but I've only recently had time to study the stock theory. I roughly understand the concept of hubs, but once I open a chart I'm lost — nothing but ups and downs everywhere. I don't know how to find the relevant hubs. Is it visual estimation? Or using "range statistics"?
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You first need to understand levels clearly, then understand the recursive method of defining hubs. These are the most fundamental basics, all covered in the lessons.
缠中说禅 2007/3/23 15:44:46
[Anonymous] 酒吧心情
2007-03-23 15:28:02
Hi JJ, today I practiced a bit with 000938 for a colleague — caught a 12.20 entry in the afternoon. Not very precise, but a small profit.
The current problem is coordinating individual stocks with the broader market.
If choosing large-cap stocks, it's more stable — just follow the charts.
But if choosing individual stocks, especially those highly sensitive to the index, at these high levels, even though I see small-level buy points, I'm always afraid of a one-way market drop, making it hard to profit under T+1.
Hope JJ can advise on how to stay in rhythm at these elevated levels.
==
These recent lessons are exactly about this issue. You must develop a certain rhythmic feel. For example, if you haven't sold the high but buy more at the low, that's equivalent to adding positions — that's no good. You must be clear about distinguishing downward segments from upward segments. Especially for those with limited capital, sell everything when selling, and when buying back, if confidence is lacking, you can split the orders. As long as you've sold first, buying back won't feel scary. So rhythm comes first — if your dance steps are completely off, how can you have a good mood or mindset?
缠中说禅 2007/3/23 15:48:58
[Anonymous] christine
2007-03-23 15:42:07
Sorry, Master Chan, I shouldn't have asked the question that way. Are second-tier blue chips found among the Shanghai-Shenzhen 300, or...? Can you give a clearer indication? Thanks!
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There have been quite a few constituent stock adjustments recently, which naturally means more opportunities to perform.
缠中说禅 2007/3/23 15:51:41
Sorry, I need to go enjoy a nice meal today. If I don't leave now, traffic will be terrible. Beijing's roads are basically impassable by rush hour.
Signing off, goodbye.
缠中说禅 2007/3/23 15:53:51
[Anonymous] 缠迷
2007-03-23 15:50:46
Dear Chan sister (I'm 40 years old — I hope it's okay to call you that, haha), I'd like to ask: among the 5-minute, 15-minute, 30-minute, and 60-minute levels, which level's divergence gives the highest confidence when buying stocks? I'm a beginner, so please don't laugh at my low-tech question, haha.
==
Let me answer before I leave. Things aren't that mechanical — there's also the situation where a+B transforms into a'+B, and you must read through the previous lessons thoroughly and completely digest them. It can't be explained in one or two sentences.
Signing off, goodbye.
缠中说禅 2007/3/23 15:18:15
Nothing much to say about today's market. The bloody battle of Thursday and Friday was pre-announced on Wednesday. Today, Bank of China deliberately showed weakness to deny the traitors any opportunity to dump shares on good news, leaving great room for future market development. But the traitors won't be deterred by these two days of turmoil — the line connecting the two high points is still above. Until it's effectively broken, sentiment will remain jittery and the traitors will strike at any moment. So patience is most important, and oscillation is the best way to stabilize confidence.
As for individual stocks, I can't say specifics — there have been too many snitches lately, which happens to be the traitors' forte. Anyway, those five sectors mentioned before, plus the recently mentioned tourism, tech, and the like, will all perform in succession. In the field of melons and plums, this ID won't say too much — everything said is just dream talk, nothing more.