Teaching You to Trade Stocks 72: A Review of This ID's Existing Lessons

2007/8/21 22:37:20

Everything has its origin. This ID is a great generalist. This ID's ultimate destination in reality is the total construction of culture—thoroughly exhausting the sources of all schools of thought and toying with them completely. Although, economically, this ID could have long since been living in luxury doing nothing, I'm not yet old enough to spend every day writing books in a study—this ID feels that's something to do at least after turning 40. Therefore, this ID's writing online is purely a matter of going with the flow, with no particular plan.

Writing about stocks is, for this ID, merely restating what this ID has been doing every day for over a decade. As stated at the beginning of the course, "'Teaching You to Trade Stocks' is a title that no second person in all of China is more suited to write than this ID." Of course, this kind of statement invites resentment, but it's a fact.

Everything related to stocks is bizarre and varied—this ID has experienced it all. So when I first started writing, there was no particular theme, just casual discussion. But for ordinary retail investors, hearing behind-the-scenes stories has no real significance. Talking about news? That's definitely meaningless too. If your intelligence network is good enough that you're the first to know before any good or bad news is announced, then there's nothing to say. And for retail investors, the era when you could multiply your wealth dozens, hundreds, or thousands of times just by holding pre-IPO shares is long gone. Buying stocks based on fundamental company research has too slow an accumulation rate and is only suitable for large funds. In fact, all fundamental research ultimately comes down to industry or overall economic development. The simplest, least brain-taxing method—which this ID has also mentioned—is to buy index funds, or specific industry and sector funds. For retail investors, the probability that your fundamental research ability can surpass that of a good fund team is infinitesimally small. As for index funds, that goes without saying—at least you definitely won't underperform the index.

For retail investors, the only way to ultimately beat the market and achieve returns exceeding the market is through technical analysis operations under the multiplication principle this ID has described. Technical analysis is one of three independent systems, and the other two—such as relative valuation and fundamentals—can help determine what types of positions to take. But once you've entered a particular instrument, technical analysis takes on decisive significance in operations. Why? Because the other dimensions don't change as frequently as the technical side. Take fundamentals—their changes are generally relatively stable and can't possibly have singularities and discontinuity points every day. The same goes for relative valuations—once a valuation relationship is established, it basically remains stable and can't change every day. So these less-changing systems don't require too much effort to study, whereas the technical side is obviously different.

So it was only natural that this course eventually began discussing the technical side. And in the technical realm, this ID's theory is certainly the best theory on technical analysis. This ID originally planned to write it out only after retiring at 40, but perhaps the timing was right—this ID didn't deliberately refuse to write it out, so it's been slowly coming out, and it's still being written now.

At the beginning, this ID hadn't seriously thought about writing the complete theory. Because back then I was having fun cursing men online, so the initial technical writing used some men-bashing tactics for entertainment. What was discussed at the time was just the moving average system, which has nothing to do with this ID's theory—it was just for fun. Of course, if you truly master the moving average system, you can handle certain situations. For example, in a one-directional trend on the daily chart, the laziest method is to just watch the 5-day moving average, while the 5-week line is the key for medium-term, and the 5-month line for long-term. For example, why is it certain that the first leg of the current bull market hasn't finished? Simple—when have you ever seen the first leg correction of a bull market not break below the 5-month line? Has this 5-month line been effectively broken in the past two-plus years? Obviously not. And after the first break below the 5-month line, the 10-month and 30-month lines will come up from below, naturally forming the bottom of a new correction, after which there will naturally be another big wave.

Later I started writing about things related to this ID's theory. Initially, I just wanted to share some useful conclusions, so the lessons weren't written in the formal theoretical framework. This ID's theory is essentially divided into two parts: one is morphology, and two is dynamics. The third, of course, is the combination of both. If following a formal curriculum, morphology would definitely come first. But without discussing dynamics, at least divergence can't be explained, then hub oscillation can't use the analogous divergence method for identification, and the first-type buy/sell point can't be discussed either. Since all buy/sell points ultimately come down to the first-type buy/sell point, if you had to complete both morphology and dynamics before discussing the first-type buy/sell point, probably everyone reading would pass out.

So at the time, I first shared some simple conclusions useful for beginners—to give everyone some practical enjoyment. Back then, 000999 happened to be at 6 yuan, and I explicitly said: buy this stock, consider it as this ID preparing the tuition fees you'd have to pay to the market for you. Just patiently study and hold a long-term stock, which is at least better than running around everywhere. This way, studying with peace of mind isn't bad either. Of course, those with ability can learn and practice simultaneously—there's nothing that needs to be uniformly planned here.

From a purely theoretical perspective, morphology is the most fundamental. Morphology is essentially geometry, and this part of the content requires no preconditions whatsoever. The previously mentioned prerequisites for this ID's theory to hold are actually not aimed at this part but mainly at the dynamics part. Therefore, even if a market maker buys everything himself and trades with himself every day, he can never escape the circles drawn by morphology. The dynamics side is different—it requires the two prerequisites this ID demands: non-completely-absolute-coincident trading in a price-fully-efficient market.

Dynamics belongs to the realm of physics. But viewed from a higher level, the essence of physics is geometry. Of course, this is something no physicist would ever agree with. But if certain geometrical structures can sort out all the physical constants, then physicists' disagreement counts for nothing. By the same principle, the dynamics part of this ID's theory is also essentially geometry—just a rather special kind of geometry that requires transforming the precondition of non-completely-absolute-coincident trading in a price-fully-efficient market into certain geometrical structures, then constructing the theoretical proofs.

So, this ID's theory as a whole is still just geometry—it just requires the precondition of non-completely-absolute-coincident trading in a price-fully-efficient market. Moreover, the final theory, of course, won't involve those geometrical structures that would make anyone who looks at them dizzy, but rather present-moment trends that anyone can understand. Theory and its proof are two different things. Anyone can understand Fermat's conjecture; the number of people who can fully understand the proof of Fermat's conjecture probably doesn't exceed one in ten million.

Of course, this ID's course has basically maintained a logical sequence throughout. However, if it were the final definitive course, the first chapter would certainly be morphology—quite different from the current order. But now, since it's already been written in this intermixed state of morphology and dynamics, we can only continue mixing them.

The distinction between morphology and dynamics is actually easy to make: anything involving divergence falls within the scope of dynamics—divergence is one of the fundamental points of dynamics. Additionally, the energy structure of hubs and trends also belongs to dynamics. Morphology, on the other hand, concerns hubs, trend types, strokes, line segments, and things of that nature.

In fact, morphology alone is sufficient to form an effective operating system. It's just that in morphology, without the concept of divergence, the first-type buy/sell point can't be captured. But the second-type buy/sell point is definitely no problem. Operating purely with morphology means: any same-level departure from the last hub that is the first to not make a new high or new low in the direction opposite to the pullback, after a pullback to the last hub, is a buy/sell segment.

Even with such a simple method, you can easily determine the current operating approach on the daily chart. For example, the corrections after May of last year and May of this year can be considered same-level. Then the subsequent sell point would be: if the price happens to pull back below 4335, any first rally that's the same level as the pullback and doesn't make a new high above 4335 would be a sell point. If there's never a pullback to below 4335 and a new same-level hub forms above it, then the operating benchmark is further raised to that hub, and so on. According to this method, from mid-2005 to now, you should have been holding stocks without moving—why? Because there's been no sell point. Of course, actual operations should target specific stocks; talking about the index is just for illustration. Looking at 000777 on the daily chart, the period around June 20—you can see a similar effect. But if you're looking at the weekly chart, then the current sell segment hasn't appeared yet, and you can clearly see that the June-July correction was merely a pullback process after breaking through the historical high. Seeing the bigger direction from a larger perspective, that's all.

Of course, the above only discusses how to operate using morphology alone. In practice, of course, it's more effective to use both dynamics and morphology together. So absolutely don't think you should only use morphology from now on. However, there's one use here: those who don't have much confidence in divergence and nested intervals can start more from morphology. Moreover, if the morphological analysis isn't good, you can't get the dynamics right either.

From a practical application standpoint, things like the recursive definition of hubs and the distinction between that and the minimum-level definition starting from fractals, strokes, and line segments—those can also be ignored. But if you do, the logic can easily become muddled, so understanding them doesn't hurt. If you're really extremely lazy, then just start from fractals—that works too.

Below, this ID provides a lazy person's roadmap:

Fractals → Strokes → Line Segments → Minimum-level Hub → Various-level Hubs, Trend Types

The above items are the most basic in morphology and absolutely cannot be simplified further. So no matter how lazy you are, if you truly want to learn this ID's theory, please first understand these things clearly.

Regarding morphology, there's still much more content to come—most importantly, various issues related to the associative law. This also includes all theories in the world related to the morphological aspects of stock theories. Based on this ID's morphology, things like candlestick theory, Elliott Wave theory, and similar playthings can all be rigorously derived from this ID's morphology. Moreover, this ID can also point out their deficiencies and the reasons for them. This work must be done—one aspect of thoroughly exhausting the sources is to encompass everything.

Note that sometimes the course progresses from shallow to deep. Things that weren't rigorous earlier can be rigorously defined after introducing new concepts. For example, at the very beginning, discussing uptrends and consolidations used highs and lows and such, because without having discussed hubs, rigorous definitions were impossible. After introducing hubs, rigorous definitions could be given.

As another example, in Lesson 64, since concepts like characteristic sequence elements hadn't been introduced, some of the discussions about line segments there were similarly imprecise, like using highs and lows to define uptrends and consolidation. After Lesson 67 introduced characteristic sequences and related concepts, the definitions became rigorous. That's why in Lesson 67, this ID said: "This lesson has precisely formalized what was previously stated as 'the necessary and sufficient condition for a line segment to be destroyed is that it is destroyed by another line segment.' Therefore, all future line segment division will be based on this precise definition."

Why was the original definition imprecise? Because under the original definition without characteristic sequences, situations analogous to small-level transitions to large-level would continue to exist within line segments. With characteristic sequences, this situation is no longer needed, and only then can line segments be precisely divided.

Since this ID's current course didn't follow the proper sequence from the very beginning, this kind of initially-imprecise-then-later-precise situation was bound to happen. This ID prefers to first explain the big picture without introducing complex concepts, then introduce the complex concepts later. This has a benefit: those with weaker comprehension can accept the simpler, less precise approach, which works fine and is still usable. For example, this ID seriously doubts that a certain male would have more than a 10% chance of understanding a concept like "fractal of the characteristic sequence." So, if you can't understand the precise version, use the imprecise one. Once your comprehension improves and your market understanding deepens, you can learn the precise version later.

For example, if right now you can only understand man-on-top, woman-on-top, kisses, and things like that—that's perfectly fine too. The key is to master one thing thoroughly—mastery is what matters. What's feared most is being half-baked. So going forward, if you have questions, make sure to ask. Resolve all the problems you want to solve. Of course, this ID can't answer every question, but representatively significant ones will definitely be addressed.