Teaching You to Trade Stocks 40: Multiple Fugue of Same-Level Decomposition
2007/3/27 12:53:22
In investing, one often encounters this kind of dilemma: you enter at a small level, but then a large-level uptrend unfolds — what do you do? At this point, there are two choices: 1. Continue operating at the small level — the cost is considerable fatigue, plus small-level operations demand higher precision and accommodate less capital; 2. Upgrade to large-level operations while partially maintaining small-level operations. For larger capital investments, the latter is more practical.
In the previous lesson, "consolidation divergence between Ai and Ai+2" will evolve into "when i is even, Ai+3 breaks below Ai's high" or "when i is odd, Ai+3 breaks above Ai's low"; correspondingly, this evolves into a higher-level hub. For example, in that case, Ai+1, Ai+2, Ai+3 form a 30-minute hub, and all larger hubs naturally require the higher-level first — without even a 30-minute hub, where would daily, weekly, or monthly hubs come from? But this phenomenon guarantees that under same-level decomposition, a small-level operation can automatically shift gears to a higher-level operation.
In the general case, in the 5-minute same-level decomposition example above, as long as from A0 to some At, A0+A1+...+At = B1+B2 (the latter being a 30-minute level same-level decomposition), you can then continue operating according to the latter decomposition. Of course, whether to shift gears to the higher-level operation depends on your time, operating style, and capital size. But this ID still recommends this kind of short-term-to-medium-term operation — even if your capital is very small, when a clear large-level improvement emerges, this operation will let you capture stable large-level fluctuation profits. Therefore, deciding whether to shift gears based on the current situation is just like shifting gears while driving based on road conditions.
For large capital, this level of operation can be extended indefinitely, becoming N-layered operations where each layer corresponds to a certain amount of capital and positions, and each correspondingly corresponds to different rhythms and fluctuations. For those who know a bit about classical music, this is like a fugue — simple motifs and melodies moving across N layers according to different principles of inversion, transposition, and counterpoint, combining into a unified composition. The market's movements are actually this kind of multiple fugue — seemingly complex but with clear structure that can be organically unified in multi-layered same-level decomposition operations.
In this kind of multiple fugue operation of same-level decomposition, you can operate at any level, all following that level's decomposition rhythm and fluctuation — the only difference is the amount of positions and capital deployed at different levels. For the overall positions and capital of large-scale investments, there is always an active multiple fugue, and actual market operations become the performance of a magnificent piece of music. The kindred spirits who can harmonize with it will reap the greatest benefits and enjoyment. Each layer's operation is both independent and part of an integrated whole. If you don't have an intuitive feel for this kind of operation, go listen to Bach's music — that is not only the bible of music but equally beneficial for stock operations.
Replies
缠中说禅 2007/3/27 12:57:28
There's an important negotiation after the close this afternoon, so I can't come online. Posting the article first. This morning we already repelled one attack by the traitors. This afternoon, there will be more turmoil. As long as sector rotation continues and banking stocks maintain a low profile, the traitors won't have any major opportunities.
Signing off, goodbye. Will be back online at 9 PM.
缠中说禅 2007/3/27 21:20:12
Sorry, I'm late.
缠中说禅 2007/3/27 21:29:47
Today's market continued to show a tug-of-war between bulls and bears. We're currently at a sensitive time window — around 21 days from the previous high — and breaking above the line connecting previous highs still requires three days of confirmation for many so-called technical traders, so market hesitation is inevitable. The remaining three days this week concern the monthly candlestick close, so intense battles and oscillation are unavoidable.
However, since the currently activated second-tier stocks have relatively strong earnings support and are more robust than the previous third-tier stocks, while banking stocks' low profile leaves the traitors with nowhere to apply downward pressure — this is where the traitors' pain lies recently.
The bulls must be patient right now — use a gentle simmer to cook the traitors through. Otherwise, the traitors' hides are so thick that intense fire won't work. As for individual stocks, I won't say specifics. Same ones as before. If you have the technical skill, find good buy/sell points. If not, just use the moving average system — if the 5-day MA isn't broken, hold. This saves worry and avoids being startled at every turn.
缠中说禅 2007/3/27 21:31:59
[Anonymous] 瞎鼓捣
2007-03-27 21:24:33
Hi boss,
I recall you once said MACD is only an auxiliary tool for judging divergence. If we don't use MACD, how do we judge divergence?
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Looking at the moving average system also works — comparing the areas between short-term and long-term moving averages will do. There are many other methods; the principle is all the same.
缠中说禅 2007/3/27 21:33:55
[Anonymous] 戈石
2007-03-27 21:30:12
Your Majesty!!!
I don't think you've ever held a Bach music event. When will we have one? Do you have Bach's "Unaccompanied Cello Suites"?
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Sure, this week.
缠中说禅 2007/3/27 21:41:16
[Anonymous] 新手
2007-03-27 21:31:21
Dear Chan sister, what's your view on today's market not forming divergence at 13:38 and instead rallying? I went fully short today. It didn't drop, and I didn't find bottom divergence either, so I didn't buy back at the low. Then everything went up and I felt regret, so I chased and bought back high. How should one handle this kind of situation? What do you think of 600961 and 600713? Can they still be looked at favorably going forward? Is 600961 a 30-minute third-type buy point? My skills are lacking — please advise, thank you!
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Today was a standard equilibrium market — just oscillating around a hub. Where do you see an uptrend? Divergence isn't used that way. From the perspective of hub oscillation, the afternoon didn't make a new low, which proves the downward force wasn't as strong as the morning's, so naturally it had to pull back up. You need to first get the theory straight. As for those two stocks you mentioned, both are fine for medium-term.
缠中说禅 2007/3/27 21:49:17
Cold Wind Clear Autumn
2007-03-27 21:25:01
Hi sister, I have a question. When you select stocks, besides trend and news, do you look at anything else? What I mean is, for example 938 — it's losing money. I checked the company's website; a tech company with the worst website, and it's selling products found in computer malls. Honestly, looking at it makes me worried?
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Look at which university is currently leading China? In China, what does technology even count for? Nothing can be divorced from the present moment — even stock trends are about the present.
缠中说禅 2007/3/27 21:52:07
[Anonymous] 草草
2007-03-27 21:48:02
Teacher, could you give a lesson on time windows? I've heard about this concept many times and read about it in newspapers too, but it's always presented so mysteriously. Wondering if you could shed some light someday!!!
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Those are all auxiliary things. Get the basic framework right first before you can start decorating.
缠中说禅 2007/3/27 21:53:13
[Anonymous] Sina User
2007-03-27 21:50:15
Hi mm. Checking in. I always have trouble handling the tops. Any good methods?
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If you're not skilled, better to sell too early than too late.
缠中说禅 2007/3/27 21:57:53
Latitude 36°54'N
2007-03-27 21:39:00
Master Chan:
How should we judge the reversal strength after a third-type buy point? What aspects should be combined?
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After a first-type buy point, the sub-level pullback doesn't break the hub — is the smaller the pullback range, the stronger?
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If a sub-sub-level reversal breaks above the most recent downward hub, is that a sign of strength?
Thanks!
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The smaller the force of the pullback after leaving the hub, the more one can expect afterward. As for specific patterns, it's more complex — I'll discuss it later.
缠中说禅 2007/3/27 22:02:02
Steel Shares
2007-03-27 21:56:00
Your Majesty, could you answer my question from yesterday:
[Anonymous] 钢股份
Let me ask: for low-income, low-investment people like us (about 100K-200K yuan), doing medium-term investing (with 20% reserved for short-term spreads), is it better to diversify by picking one stock from each sector, or go heavy into one stock?
I currently hold 600008, 000683, 000959, 600526 — could you please give some advice?
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One stock per sector is sufficient. The reason you don't dare concentrate is because you lack confidence. To improve, you must constantly force yourself to analyze more precisely, increasing your confidence — that's how you progress. Generally, with limited capital, holding stocks in at most two or three sectors is enough — this way they can support each other during sector rotations.
Those four stocks are fine for medium-term.
缠中说禅 2007/3/27 22:05:07
[Anonymous] 台湾局势
2007-03-27 22:00:03
Hi Chan mm,
What's your view on the Taiwan situation? Will there be war?
The Taiwan authorities are going further and further on the road to independence. The Chinese government won't sit by and watch. Relative to the nation's supreme interests, would the government sacrifice the long-term development of the stock market?
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This is like a hub oscillation — upward breakout represents peaceful reunification, downward breakout represents military reunification. The question is whether a third-type buy point or sell point appears. And that buy/sell point is determined in the present moment, as the result of combined forces — predicting this is meaningless because it's unpredictable. The only thing that can be stated with certainty is that as long as a third-type buy or sell point emerges, the current hub oscillation will definitely end.
缠中说禅 2007/3/27 22:10:37
[Anonymous] 晚安
2007-03-27 22:00:00
"But since the currently activated second-tier stocks have relatively strong earnings support and are more robust than the previous third-tier stocks, while banking stocks' low profile leaves the traitors with nowhere to apply downward pressure — this is where the traitors' pain lies recently."
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Teacher, there's one thing I don't understand. Since the traitors are heavily positioned in banking stocks and have nowhere to apply pressure, why don't they reverse and push them up? Don't they want to make money? Or can they just hang in mid-air like that, embarrassingly dangling in the wind?
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If your portfolio is almost entirely banking stocks, why would you push them up? To let people in second and third-tier stocks cash out? Playing Lei Feng?
The traitors got their rhythm wrong and there's no changing it now — this year's big run in second and third-tier stocks has nothing to do with them. Forget the traitors — those bears who've been screaming about going back to 2200 since New Year's — does this year's market have anything to do with them?
When the bears turn bullish, the market will no longer be this kind of market.
缠中说禅 2007/3/27 22:14:44
[Anonymous] 快乐VS菜虫
2007-03-27 22:08:25
After reading Chan sister's reply about real estate yesterday, I'm quite confused, so I'd like to ask again.
I've read your previous articles about real estate — the point was that the housing market would become like the stock market. Since the stock market can't only go up, how could the housing market possibly not go down? If it doesn't go down, how can it be called "stock-market-ified"?
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That was an analogy — using the previous impotence of stock market regulation to compare with the current impotence of real estate regulation. For a long time, "stock market" was a pejorative term. In fact, even now, many people still think this way — if you don't believe it, go ask the 70-plus-year-old economics cigar-smokers.
缠中说禅 2007/3/27 22:17:54
It's past 10 PM. Sorry, I really must go. Must sleep before the Hour of the Rat.
Goodbye.
缠中说禅 2007/3/27 12:57:02
There's an important negotiation after the close this afternoon, so I can't come online. Posting the article first. This morning we already repelled one attack by the traitors. This afternoon, there will be more turmoil. As long as sector rotation continues and banking stocks maintain a low profile, the traitors won't have any major opportunities.
Signing off, goodbye.