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Teaching You to Trade Stocks 93: The Two Layers of Interior-Exterior Relationships in Trend Structure 2

2008/1/15 18:08:05

Obviously, all problems are concentrated on what to do after (1, 0) or (-1, 0). If there were only one possible outcome after these two states, that would be nice, but unfortunately the world isn't that simple. After (1, 0) or (-1, 0), there are two possibilities: (1, 1) and (-1, 1).

Let's use (1, 0) as the example — the (-1, 0) case is just the reverse. The (-1, 0) signal is absolutely clear and unambiguous; anyone can uniquely determine it. So for the same signal, different people will handle it differently depending on their skill level:

Case 1: If your oscillation trading skills are average, you're relatively timid, lack time or fast execution channels, and prefer locking in profits — then after a sufficiently long-period (1, 1) produces a (1, 0), such as on the weekly or daily chart, this means there's already sufficient profit space. At this point, the simplest approach is to cash out your cost basis first, leave the profits in, and let the market make its own choice without racking your brain over it.

The remaining position can be operated as follows: if (-1, 1) appears, it means the lower time period chart must also show (-1, 1). Then after this downward stroke ends, if the returning upward stroke fails to make a new high, you can dump the remaining position. For example, on the weekly, you can watch the daily or 30-minute lower time period chart. Of course, you can also simply watch the weekly 5-week moving average — if it's effectively broken below, just exit. That might be even simpler.

Case 2: If your oscillation trading skills are relatively good, use the fluctuation that necessarily follows (1, 0) for short-term swing operations. Since it always involves selling first then buying back, if you discover the market has chosen (-1, 1), then on the last round you simply don't buy back, completely exiting the battle.

Note: when using swing operations, you must properly analyze the trend type corresponding to this (1, 1) to (1, 0) transition. For example, a weekly (1, 1) to (1, 0) necessarily corresponds to a smaller-level upward movement. Whether this level is 1-minute, 5-minute, or 30-minute is immediately obvious from examining the specific chart.

The appearance of (1, 0) has two possible scenarios: First, the corresponding upward movement shows clear divergence and is completely confirmed as finished. Then the entire oscillation range should be based on the last hub of the upward movement — as long as it revolves around that range, it's a strong oscillation. Otherwise, it's definitely going to become (-1, 1), which is a weak oscillation. For weak oscillation, generally once confirmed, it's best not to participate. Wait until (-1, 0) appears before reconsidering.

Case 3: If the market ultimately chooses (1, 1), then this (1, 0) interval has extremely important significance. The (1, 1) segments above and below this interval can be compared in terms of momentum — once the latter segment's momentum is less than the former's, it's a clear topping signal. Then use interval nesting based on the corresponding trend type to locate the position, and the true high point cannot escape.

Above, I've classified and explained all possible operations. The methods aren't difficult — the key is being proficient when applying them, and that's not something you can achieve just by talking about it. What level of operation you ultimately reach depends on your own practice and refinement.