Teaching You to Trade Stocks 42: Some People Are Simply Not Suited for the Market
2007/4/4 15:31:30
Managing to accumulate heavy losses in the Chinese stock market during 2006, and ultimately being forced to flee to Hong Kong — this kind of extraordinary individual is absolutely the biggest miracle of the 2006 market. A few days ago, when this ID had the fortune of hearing about this person, I truly had the urge to witness him in person. When I was told this person is a 50-year-old man from Beijing, I abandoned the idea. On reflection, this actually isn't strange — someone with extreme psychological issues can certainly create the miracle of severe full-year losses in 2006. For example, selling on every washout, not daring to buy when rallies start, always buying the top, then selling again — a few rounds of this and severe losses are inevitable. The most extraordinary thing is that after going to Hong Kong, he actually managed to make some money. His trick: whenever he saw a stock being pushed in the domestic A-share market, he'd buy the corresponding stock in Hong Kong, then exit T+0 — absolutely not daring to hold overnight. The market truly has such marvelous characters, quite interesting indeed.
I've repeatedly said that tempering one's mindset is crucial for market operations, but this matter must be viewed separately. Some people are simply wired this way — incorrigible, it's their nature. At critical moments, they simply can't hold their ground. For example, knowing perfectly well in their head that they shouldn't buy, but their hands just itch, like an addict having withdrawal symptoms, beyond control. Now buying and selling operations are extremely simple — in the old days, whether institutions or major players, there were order slips, red-vested floor traders, and the like. Now any random retail investor can complete a trade online in 1 second. If you can't withstand that 1 second, all technique and theory are useless. So what to do? The best approach, of course, is to go to "rehab" — this must start with the most basic psychological training, but not everyone has the means to do this. Alternatively, just stay away from the stock market — the stock market is only one part of life. A life without the stock market is still a life — being alive is good enough. Yet another option is to change environments — like the extraordinary person above, who went to Hong Kong, found an alternative remedy, and while not cured, at least felt somewhat better.
In a sense, trading doesn't necessarily temper one's mindset. It's like treating certain male conditions — once the root is diseased, there's really no good remedy. The best approach is to withdraw, at least to avoid being repeatedly swindled by quack doctors and wasting money. Of course, whether one is suited for the market only has present-moment significance — it doesn't mean they're truly hopeless forever. But some particularly severe cases truly aren't suited for in-market treatment and must first distance themselves from the market for a period, completely transform, before any improvement is possible.
Here, let me enumerate several types unsuited for the market:
Type One: Ear Controls Brain. This type of person, upon hearing anything, can completely bypass the brain and have their ears directly control their hands. If virtually every trade of yours is completed this way, you are fundamentally unsuited for the market.
Type Two: Compulsive Shopping. This type's greatest trait is having perhaps only tens of thousands in capital yet managing to own ten, twenty, or even dozens of stocks. They want to own everything, and whenever any stock rises, they say "I have that one too," using this to comfort themselves. This type is fundamentally unsuited for the market.
Type Three: Loss of Control. Every time they operate, they know perfectly well it's wrong but simply cannot control themselves. There's a stubborn force inside — at every critical decision point, the chain always breaks. This type is fundamentally unsuited for the market.
Type Four: Eternal Admission, Never Correction. The classic forever admitting mistakes yet never actually correcting them. The same faults can be committed forever without ever being fixed. In the market, one single fault can be fatal — a person who admits but never corrects is unsuited for the market.
Type Five: The Xianglin's Wife Type. This type forever sighs and moans, and may even develop a special enjoyment of this tragic atmosphere. The market isn't a place for suffering — why torment yourself? The world outside the market is vast — just leave.
Type Six: The Gambler. For them, the market is just a casino. This type has no business being in the market. Not to mention far-away places — Macau recently has several new casinos, and a certain island in Zhuhai is being connected by bridge. That island will be developed into a large resort — gamble by day across the bridge, sleep back at home at night. The entity participating in this development, backed by a major American conglomerate, has just acquired a large domestic tourism company — it'll be one-stop service, very convenient.
Type Seven: The Stock Commentator. The market has plenty of people who love to brag — some are losing terribly yet can't stop boasting. For them, the market isn't for operating but for chatting and bragging. This type is unsuited for the market — go be a stock commentator instead.
Type Eight: Too Deep in Character. This type treats market fluctuations like a TV drama — every tiny movement causes their emotions to go haywire. They lose control on rallies, on drops, on consolidation too. Four hours of trading, four hours of torment. This type finds the market too exhausting — better to go home and watch soap operas.
Type Nine: The Obsessive. This type loves to fixate on one idea, unmovable by ten thousand oxen. Obsessiveness might be harmless or even beneficial for theoretical research or other endeavors, but in the ever-changing market, the obsessive has no path to survival.
Type Ten: The Zhao Kuo Type. Market operations are different from pure theoretical research. The market is the market, just like a battlefield — the Zhao Kuo types likewise have no path to survival.
The above ten types are particularly unsuited for the market. Of course, it doesn't mean that someone exhibiting these traits must permanently leave the market — the key is to adjust first. As the saying goes, the real work lies outside poetry — and it's the same in the market. Can someone who truly reaches and maintains the summit of market performance possibly be a fool or someone with psychological afflictions?
As they say, character determines destiny. These past two lessons haven't discussed technical issues — instead talking about seemingly unrelated matters, but they are in fact highly relevant. To understand the market, you must first understand yourself. Know where your weaknesses lie. Be clearly aware of every action you take in the market. After every close, take ten minutes to review your day's operations and the psychological processes during market observation — this is absolutely necessary.
Replies
缠中说禅 2007/4/4 16:00:37
Sorry, right after posting I couldn't get in — kept getting an invalid address error. Probably Sina's system being unstable.
缠中说禅 2007/4/4 16:17:09
[Anonymous] 水房姑娘
2007-04-04 15:51:52
Chan M, you mentioned the other day that management keeps delaying the launch of the ChiNext board. Media is saying ChiNext might happen this year — is there really a chance?
=
Things in China are hard to say — too many interests to balance. From the market's interest perspective, the sooner the better. Everyone with ability should push harder for it to happen faster. But it's not something any one person can accomplish. The key is whether those in charge truly understand — there are too many voices, nobody knows who to listen to, so getting anything done is extremely difficult.
缠中说禅 2007/4/4 16:17:50
The system is really acting up today.
缠中说禅 2007/4/4 16:21:48
[Anonymous] 缠心雕龙
2007-04-04 15:42:28
Hello!
Chán Zhōng Shuō Chán
2007-04-02 21:53:32
Star
2007-04-02 21:44:33
"If there's 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."
-- 1. If there's no consolidation divergence, when i is even and Ai+3 breaks below Ai's high, should I sell? Should I sell as soon as it breaks below?
== Unless the small-level-to-large-level a+B' situation occurs, breaking below and consolidation divergence are the same thing.
In this reply from the day before yesterday, why does it say breaking below and consolidation divergence are the same thing? Is the consolidation divergence here referring to Ai+2 and Ai?
Also, if Ai+2 and Ai don't show consolidation divergence (and assuming Ai+1's low doesn't break Ai-2's high), then at the end of Ai+2 one should hold. But what if Ai+3 has a sharp crash that keeps going all the way below Ai's low without ending? At this point there would definitely be losses, and even the subsequent upward Ai+4 might not necessarily recover the position. How should one handle this situation?
=
If consolidation divergence doesn't evolve into a+B' and then continue in the original upward direction, it will definitely break below or above that level — this is the same principle as how failure to break out of a hub must mean a pullback to the hub. In fact, after consolidation divergence, 90% of a+B' cases basically do break below or above that level, but this isn't absolutely certain — it differs from the previous situation in that regard.
缠中说禅 2007/4/4 16:27:19
[Anonymous] 白玉兰
2007-04-04 16:19:01
Dear sister, look at my condition:
777 — bought at 9 yuan, sold at 15 yuan and never dared get back in. If I could have danced with the oscillation, I could've made a small fortune.
==
After the first big washout makes the MACD return to pull back toward the zero axis on the daily chart, you must buy back. Even in a divergence scenario, there's still a chance to make new highs, and there's also the possibility that it's not in divergence — that would be powerful. This ID has said before, among those 14 stocks, doubling is appetizer stuff. Only having one washout after doubling just proves it's going beyond doubling. But don't chase now — no stock is worth chasing.
缠中说禅 2007/4/4 16:28:32
[Anonymous] Moon Child
2007-04-04 16:24:26
Stocks are rising too fast — management might start taxing this. That wouldn't be good for either market makers or individual stocks. Wouldn't it be better to go up wave by wave? Teacher, do you think so?
=
State-owned shares are the biggest shareholders. If they're willing to pay the tax, this ID has no objection.
缠中说禅 2007/4/4 16:30:04
[Anonymous] 新年好
2007-04-04 15:55:02
The Shenzhen and Shanghai indices are really diverging now. I'm using the Shenzhen index to guide my operations. But I can never quite judge the divergence strength — Chan sister, could you find time to discuss the topic of force measurement?
=
There's a lesson specifically on the three scenarios after divergence — please go look it up.
缠中说禅 2007/4/4 16:31:43
[Anonymous] asdf
2007-04-04 15:55:25
For the three segments that form a hub, does the author have any practical tips that can help us avoid having to judge level by level whether each segment is complete? For example, to determine a daily hub formation, at minimum we need three completed 30-minute trend types, and each 30-minute segment requires three 5-minute segments, each 5-minute requires at least three 1-minute segments — this recursive checking feels really impractical. Can it be conveniently determined just from the daily or 30-minute chart?
=
This question has been addressed many times — for trends, look at divergence; for consolidation, look at the third-type buy/sell point.
缠中说禅 2007/4/4 16:34:54
[Anonymous] 百思不解
2007-04-04 15:43:33
Hello! A question about non-same-level decomposition.
Same-level decomposition rules: "At a certain level, hub extension is not defined, and consolidation + consolidation connections are allowed at that level; simultaneously, for all levels below, hub extension is allowed and consolidation + consolidation is not allowed; levels above are completely disregarded since all trends are decomposed at the designated level."
Under same-level decomposition, if hub extension isn't defined at the current level, then hubs within current-level trends can't extend. Wouldn't that mean many current-level trends no longer hold? All get decomposed?
Even if the current level uses same-level decomposition, sub-levels and below still allow hub extension — meaning sub-levels still use non-same-level decomposition. So in practice, non-same-level decomposition is unavoidable. Please advise on the principles of non-same-level decomposition.
My understanding of non-same-level decomposition seems similar to the connection model in Lesson 16, except the uptrend level in "uptrend + consolidation" can differ from the consolidation by more than one level? There should be many more details to non-same-level decomposition principles — this is where practice becomes unclear and affects trend interpretation.
==
A 30-minute trend with N non-extending 30-minute hubs — there's absolutely no problem of it being decomposed. Under 30-minute same-level decomposition, it's simply viewed as one trend. If one of those hubs extends to 6 segments, it naturally gets decomposed into two 30-minute consolidations — there's nothing hard to understand about this.
缠中说禅 2007/4/4 16:36:46
[Anonymous] abc
2007-04-04 16:33:10
Would implementing capital gains tax end the bull market?
=
By that logic, foreign countries would never have bull markets? To end the current bull market, you'd need to fall back below 1000 points. Otherwise, everything is just corrections within a great bull market.
缠中说禅 2007/4/4 16:38:20
[Anonymous] 袖手旁观
2007-04-04 15:44:37
In yesterday's Analerta translation, the first half's direct translation seems disconnected between the questions and answers. What's Chan mm's view?
=
There's no disconnection. If this counts as disconnection, then Zen Buddhist records would be completely unreadable.
缠中说禅 2007/4/4 16:41:37
[Anonymous] 新年好
2007-04-04 16:04:40
Today on the Shenzhen index, both 04041104 and 04041351 looked like divergence, but the first one barely pulled back before going straight up, while the second had a much bigger pullback. How should this be judged?
I participated at the first divergence point but the spread was minimal. At the second time I didn't participate, and it pulled back a lot. Really painful.
==
Don't look at complicated things. Just like Shenzhen today — look at the 1-minute MACD chart. What major difference do you see between those two points you mentioned?
缠中说禅 2007/4/4 16:43:25
[Anonymous] Sina User
2007-04-04 16:05:26
[Anonymous] 新年好
2007-04-04 15:59:27
For example, 938 diverged on the 5-minute at 03300935 but nothing happened for a long time. Then today it suddenly rallied. I bet lots of people couldn't hold on and had already fled.
-----------
Stop always looking at the 5-minute chart, will you?
This ID's theory is good but sometimes doesn't work, so we should also look at her theory dialectically.
==
This ID has long stated when the theory doesn't work: only in a market where there's a single trader. Besides that, there's nothing that doesn't work.
缠中说禅 2007/4/4 16:46:56
[Anonymous] 白玉兰
2007-04-04 16:12:10
Hello dear sister!
My Shandong stock has made some moves.
How about Yunnan Copper — does it correlate strongly with futures?
==
Yunnan Copper has no major medium-term issues. Right now it's just washing out in the historical all-time high zone. Look at the corresponding movements of stocks that ultimately broke through historical all-time highs in this rally and you'll understand.
缠中说禅 2007/4/4 16:48:17
[Anonymous] 漂泊
2007-04-04 16:06:09
Master Chan, this is an embarrassing question to ask — how do I identify the overlap of three segments?
=
1 to 5; 5 to 2; 2 to 7 — where do you think the overlap is?
缠中说禅 2007/4/4 16:50:58
[Anonymous] 缠迷
2007-04-04 16:33:10
Dear Chan sister, 600649 is also one of the 14 stocks, and currently it's moving the slowest. But I've been holding tight, letting it temper my patience — though I'm nearly at my limit, haha.
==
You need to look at where it is now. Open the weekly chart and look to its left — this is a historical high-volume zone.
缠中说禅 2007/4/4 16:55:32
[Anonymous] 白玉兰
2007-04-04 16:41:43
[Anonymous] 白玉兰
2007-04-04 16:23:11
[Anonymous] 白玉兰
2007-04-04 16:19:01
Dear sister, look at my condition:
777 — bought at 9 yuan, sold at 15 yuan and never dared get back in. If I could have danced with the oscillation, I could've made a small fortune.
＋＋＋＋＋＋＋＋＋＋
Correction above — sold at 15 yuan.
But my Shandong stock was operated well — I sold most but kept some. Cost is now negative 23 yuan.
However, I don't know what to do with the cashed-out money — buy or wait?
＋＋＋＋＋＋＋＋＋＋＋＋
If sister doesn't answer, I'll take it as tacit approval to wait for now...
==
Cashing out to zero cost is sufficient, especially for stocks with medium-term potential. This is a matter of good versus bad habits. For example, with 777 — after it basically doubles, sell half. Leave the rest aside and ignore it. Even if you can't do short-term trades to multiply your shares, this single move alone can achieve maximum returns with minimum risk in a big bull market.
缠中说禅 2007/4/4 16:58:22
[Anonymous] 大猪
2007-04-04 16:40:43
Master Chan, hello!
How do I judge whether large-level energy is exhausted or not? In my actual operations, I've encountered small-level divergence, sold, then after a few oscillations it went up again. Couldn't even capture a spread. Part of the problem might be operating at too small a level, but mainly I can't judge whether large-level energy is exhausted. Please help clarify, thank you!
==
If your technique isn't good, use 30-minute level for entries and exits. If the 5-day MA isn't even broken, don't mess around. Spreads are everywhere — the key is whether your technique has reached that level. If not, you'll only confuse yourself. First learn to stand up, then run.
缠中说禅 2007/4/4 17:00:57
[Anonymous] Sina User
2007-04-04 16:55:36
Boss, talk about 343 — what's going on?
=
343 has no problem. The only issue was mentioned over a month ago — a certain traitor fund holds too much, which doesn't sit well with this ID.
缠中说禅 2007/4/4 17:03:03
[Anonymous] 新年好
2007-04-04 16:59:49
Chán Zhōng Shuō Chán
2007-04-04 16:50:58
[Anonymous] 缠迷
2007-04-04 16:33:10
Dear Chan sister, 600649 is also one of the 14 stocks, and currently it's moving the slowest. But I've been holding tight, letting it temper my patience — though I'm nearly at my limit, haha.
==
You need to look at where it is now. Open the weekly chart and look to its left — this is a historical high-volume zone.
--------
What does "historical high-volume zone" mean? And what impact does it have?
==
It means historically most people got trapped at this price range. Stocks aren't charity galas — if those without confidence and patience don't get shaken out and turnover isn't sufficient, how could there possibly be a big rally?
缠中说禅 2007/4/4 17:04:09
[Anonymous] 清
2007-04-04 17:02:08
Haven't asked questions in a while — just quietly digesting...
"1 to 5; 5 to 2; 2 to 7 — where's the overlap?"
I know this one... hehe.
But I want to ask: 1 to 5, gap to 4 to 2, 2 to 7 — where's the overlap then?
Also another question. For a stock like 600682, when bad news drops and it goes limit-down on no volume, after the first time the limit-down is opened, how should one generally operate?
--
A gap is the smallest-level trend, and it's handled the same way as the non-gap case.
缠中说禅 2007/4/4 17:18:51
[Anonymous] 酒红的心
2007-04-04 16:56:21
Boss, from the perspective of traditional Chinese culture, will genetically modified food cause serious harm to humans?
==
If you define humans as beings determined by certain genes, then of course there's an effect. But are humans really like that? The issue isn't what genes do — it's first understanding what a human being actually is. Who are you?
缠中说禅 2007/4/4 17:21:24
[Anonymous] 走失的爱犬
2007-04-04 17:18:36
Chan sister, has the bad news you mentioned about Thunis come out yet? It hit limit-up today! I've been waiting this whole time!
==
Do you know what the biggest bad news is? It's that Tsinghua is no longer Tsinghua — besides this, what do all those so-called negatives even amount to?
缠中说禅 2007/4/4 17:24:10
[Anonymous] 大猪
2007-04-04 17:19:36
Thank you Master Chan!!
One more question: how to choose which hub to analyze. Suppose on a 5-minute chart, the trend breaks out of the original hub and forms a new segment with a new "hub," but the oscillation around this new "hub" overlaps with the previous hub — or the two hubs overlap. How should I choose which hub to analyze?
Thank you!
==
Then it needs to be expanded into a larger hub. In a trend, same-level hubs should never have any overlap between them. This is all covered in the lessons on hub expansion and extension.
缠中说禅 2007/4/4 17:34:20
[Anonymous] 袖手旁观
2007-04-04 17:21:58
Chán Zhōng Shuō Chán
2007-04-04 16:38:20
[Anonymous] 袖手旁观
2007-04-04 15:44:37
In yesterday's Analects translation, the first half's direct translation seems disconnected between the questions and answers. What's Chan mm's view?
=
There's no disconnection. If this counts as disconnection, then Zen Buddhist records would be completely unreadable.
——————————————————————
Actually, Zen records before the mid-Tang dynasty rarely contained dialogic encounter phrases — most were straightforward explanations of Zen principles.
Moreover, even the later records emphasized "seal of mind to mind" and were mostly analogical, naturally readable.
Applying Zen riddle style to Analects translation doesn't seem quite fitting — classical Chinese over colloquial Zen.
But the main exposition is very enlightening — no objections there.
=
The Buddha-dharma is level and deep.
缠中说禅 2007/4/4 17:37:43
[Anonymous] 禅迷
2007-04-04 17:27:33
Teacher, you once mentioned that when the Shanghai and Shenzhen indices diverge, the market usually needs a correction. In the past, it was typically the Shanghai index gains exceeding Shenzhen's. But today Shenzhen is much stronger than Shanghai — what might happen with the market?
Eagerly awaiting your guidance, thank you.
=
I've already explained the reason — the Shenzhen component index represents quality second-tier stocks, while the Shanghai index is just a super-large-cap index. Shenzhen isn't actually stronger than Shanghai — it hasn't even broken its line connecting the two previous highs, while Shanghai broke through long ago. Shanghai isn't following — that's why we had today's oscillation. If it still doesn't follow, then oscillation continues until it does.
缠中说禅 2007/4/4 17:41:13
[Anonymous] 瞎鼓捣
2007-04-04 17:34:31
Boss, no dinner plans tonight??
=
Think about what day it is these last two days?
缠中说禅 2007/4/4 17:43:18
Alright, it's nearly 6 PM. Have things to do at home. Signing off, goodbye.
缠中说禅 2007/4/7 14:52:10
??????????
缠中说禅 2007/4/4 15:33:12
Nothing to say about today's market — what needed to be said was said yesterday. Today's movement followed this ID's yesterday's script as if copying it. If you've already read the script in advance and still can't operate well, then there's no helping it. From a purely technical standpoint, Shenzhen has basically reached the line connecting the two previous highs around the 9200-point area, so technical resistance here is perfectly normal. Shanghai's been weak lately for a simple reason — it's temporarily out of targets. Shenzhen still has that line to attack, while Shanghai has infinite openness above but ironically can't find its bearings. Of course, more importantly, the Shenzhen index better represents quality second-tier stocks. This sector is gaining more and more recognition recently, so Shenzhen's strength actually represents this ID's quality second-tier stock script being played out by the market.
I won't discuss individual stocks. At this position, there's absolutely no need to chase. As long as you can maintain the buy/sell rhythm, there should be no major issues. Oscillation is a good thing — for those with good rhythm, the more oscillation, the lower the cost. Ideally it would oscillate every day. If your technique isn't great, watch the 5-day MA; for medium-term, watch the 10-day MA. Look at the wave starting last August — the 10-day MA basically was never broken. If it truly breaks, that signals a larger-scale correction. Conversely, if even the 5-day MA isn't broken, don't worry. With sector rotation, as long as a stock isn't complete garbage, its turn will come.