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Teaching You to Trade Stocks 107: How to Trade Short-Term Rebounds

2008/8/19 16:10:39

Today was very unsmooth. That extraordinary person seems to have been influenced by something and suddenly changed his tone. One possibility is because of this ID's posts from a few days ago. There are some friends of this ID here — for example, regarding the hepatic coma incident and the subsequent hospital transfer, there should be at least N people here who witnessed it firsthand. Moreover, the random phone calls that day, plus the computer being taken for repair by my brother's classmate — there are many variables in all this, and this ID doesn't care to investigate. And the chances of that extraordinary person accidentally stumbling upon this are not small either. In any case, regardless of the reason, the extraordinary person used "afraid the body can't handle it" as a pretext to double the interval of what was supposed to be daily treatments, and his phone was also disconnected today. However, this ID has his home number and another mobile number, so this doesn't have much impact. But the feeling it gives is already off — at the very least, it shows he's positioning the relationship as nothing more than doctor-patient.

This ID was actually already prepared for consequences that might arise from publicly discussing these matters. The reason for doing it this way this time was actually to unveil some things earlier. If that's how he reacts because of this, then this ID doesn't need to meet any extraordinary person. His methods — this ID actually understood them long ago. It was just that certain specific details I still hoped to discuss face to face. Also, for things like diabetes, AIDS, and so on, I hoped to have someone of high caliber to discuss with — mutual discussion might spark even greater breakthroughs. But if the karmic conditions aren't right, then so be it. Still, this ID isn't ready to give up just yet. After all, people of true caliber are incredibly rare to encounter. Having found one who at least isn't confused in this area, one can't just let go easily.

The extraordinary person said at the time that this ultimate art would truly end with him — he had no intention of passing it down. If he truly insists on this, this ID has no choice but to say it's collective karma. If so, then so be it.

As for this ID's illness — honestly, this ID doesn't want to be cured right now. Because the knot from 2002 hasn't been untied in six years. Without untying it, even if this ID recovers, it would be meaningless — it would actually make that knot permanently unsolvable. This is actually the real reason this ID has been reluctant to personally take drastic measures. As for my brother — this time, the extraordinary person presented a good example for him to reflect on through karmic connection. But based on this ID's understanding of my brother, even if the extraordinary person truly cured this ID, he still wouldn't bow his head. These things can only depend on one's own wisdom and spiritual destiny. Even the closest of family members ultimately cannot truly resolve any problems for each other.

Alright, since there's nothing else going on, let's continue with stocks. Today's price action was all covered in previous analyses, so there's no need to repeat specifics. Everyone should study and grasp it on their own. Here, let me re-emphasize some of the most fundamental operational issues. In truth, poor trading execution ultimately comes down to incomplete, non-thorough mastery of the theory.

For example, here's a very practical question: if according to the theory, there should be at least a 30-minute level rebound, how exactly should the trading operation be arranged? First, you must figure out the possible specific forms the rebound could take, because even at the same 30-minute level, different forms correspond to different operational difficulties and methods. The biggest challenge is that you cannot know in advance exactly what form the rebound will take, because that involves prediction, and no prediction can be incorporated into an operational plan — predictions are only for chitchat and bragging. To solve this challenge, you must proceed from absolute certainties, with zero prediction involved.

For a 30-minute trend type, the one thing we can state with absolute certainty is that this rebound will have at least one 30-minute level hub. Having this is sufficient — from this alone, we can construct a set of absolutely certain operational methods.

A hub of any given level is constructed by the overlap of three or more sub-level trend types. In other words, a 30-minute hub necessarily involves three 5-minute trend types in an up-down-up pattern. This is the most solid foundation for the absolute certainty of our operations.

Obviously, there is no absolute guarantee that in the up-down-up sequence, the last up will have a higher high than the first up. Especially in so-called running-type rebounds, the high of the latter up may only barely touch the low of the former up. Therefore, if you insist on waiting until the entire up-down-up completes before selling, you may face the embarrassing situation where, having bought at the lowest point of the first up, after the elevator ride of the up-down-up, you're left with a fleeting sell point that may not even cover transaction fees. Thus, this kind of operation has only relative theoretical absolute safety, but no absolute safety in actual execution. To solve this problem, you can only begin decomposing operations from the first up — meaning there's no need to wait for the second up. Since every up is necessarily followed by a same-level down, and the magnitude of that down cannot be absolutely controlled, it's better to just segment your operations and let the segmentation provide you with absolute practical operational safety.

Therefore, under this analysis, specific rebound operations must be conducted through sub-level decomposition — that is, a 30-minute level rebound is handled at the 5-minute rhythm.

Note: this is merely the unified handling method. In actual operations, once the first up and down have appeared, the possible forms of subsequent price action gain much greater certainty. For example, after one 30-minute hub, if a third-type buy point appears, followed by a strong, non-divergent upward surge, then you can absolutely start riding the sedan chair. Wait for the second hub, or even the third, fourth, or fifth hub to complete and show divergence before the third-type sell point — only then do you need to act.

Furthermore, and more importantly, this absolute-certainty approach isn't even the most efficient on average. The most efficient is to maintain a partial position and use the remaining position for stock rotation operations. For those with small capital, this can even be done with the full position, but the technical requirements are higher, so I won't elaborate.

Finally, you absolutely must not try to predict whether it's a rebound or a reversal — that's fundamentally meaningless. If a rebound keeps getting bigger and bigger, it naturally becomes a reversal. Whether that happens or not doesn't need to be known. The only thing you need to know is this: only after a third-type buy point appears following the first hub and forms a non-divergent upward move can you hold your stocks while drooling and sleeping, waiting for subsequent hubs to form. Otherwise, there is always the risk of being whipped back down.

Some people like precise definitions, so here I'll actually give the most precise definition of when an uptrend is established: it is when a third-type buy point appears after the first hub and forms a non-divergent upward move. Once a trend is established, as long as there are no signals of trend reversal, of course you can sleep soundly — this is pure common sense. This ID's theory doesn't necessarily contradict common sense. It's just that this ID's theory provides correct common sense with a sound theoretical foundation — and that's what's truly key.

In future lessons, we will begin specifically analyzing various possible rebound types. This will also be extremely useful for consolidation operations. However, it must be added that actual operational results still require practice and refinement. Rebounds work this way, and pullback operations are just the reverse — no need to say more.