Teaching You to Trade Stocks 9: The Mathematical Principle for Identifying "Premature Ejaculators"!
2006/11/22 12:00:00
Designing a program to classify all investment objects and only playing those that are playable — this is the first principle of investing. Among the classification methods, the programs applied can be of all varieties, but one thing is certain: no program can guarantee that all the selected "doable" targets will end up being ridden to ecstatic climax after ecstatic climax, just as no gigolo-selection program can guarantee that all selected "doable" candidates will be ridden to ecstatic climax after ecstatic climax. Because any operating program must inevitably face the "premature ejaculation" problem, just as any gigolo selection inevitably faces the problem of identifying "premature ejaculators."
And the reason identifying "premature ejaculators" is so fiendishly difficult — causing countless so-called experts to die without a burial ground — is because "premature ejaculation" really can only be discovered through actual hands-on engagement. This is far more complex and far riskier than identifying ED. ED can be discovered early without deep involvement, but "premature ejaculation" cannot — you have to try it out, and this thing is a one-shot deal. Even if it works this time, there's no guarantee it'll work next time. Therefore, effectively identifying and catching it early to minimize losses becomes the number one challenge. Many so-called experts will claim that when such-and-such conditions appear, this stock will rise. But in reality, any given condition has a very high probability of "premature ejaculation" — what was confirmed as doable suddenly becomes not doable, turning an entry into being trapped. Such situations are all too common in investing.
So how do you identify "premature ejaculators"? The foremost approach is strict capital management. Once "premature ejaculation" occurs, you must exit immediately — even if it suddenly stops being "premature" and powers into a strong climax right after, you still must do this. Moreover, "premature ejaculation" is extremely sensitive — a random factor can cause it, and to start again requires waiting through a long refractory period. After a long adjustment, even if there will be non-stop climaxes ahead, you've wasted time, and with that time, there are plenty of other things to play with. The world doesn't have just one gigolo or one stock. Of course, what's described here are just basic principles. If you have a strict system for phased entry and exit, everything becomes simple. Capital management involves many aspects and will be specifically analyzed and introduced later. What we're discussing here is another angle — how to avoid encountering "premature ejaculators" in the investment field as much as possible.
The fundamental reason "premature ejaculation" occurs is that the entry program has a gap — an anomaly appears that the program cannot cover, and this is inevitable for all programs. The probability of a program encountering an anomaly — that is, the probability of "premature ejaculation" — can be determined through long-term data testing. The simplest example is flipping a coin: heads means buy, tails means don't. This counts as an entry program, but such a program's "premature ejaculation" rate is at least 50% or higher. The problem is actually very simple: how to find an entry program with a particularly low "premature ejaculation" rate. But the answer is unfortunately bleak: no single isolated program will have a very low "premature ejaculation" rate. If a program's "premature ejaculation" rate is below 10%, it's already a world-class program. Under that program, out of 10 investments you'd have at most 1 failure — such a program is extremely powerful and practically non-existent.
But the situation isn't as grim as it appears. In mathematics, there's a multiplication principle that can completely solve this problem. Suppose three mutually independent programs have "premature ejaculation" rates of 30%, 40%, and 30% respectively — these are all very ordinary, unremarkable programs. The combined program group's "premature ejaculation" rate would be 30%*40%*30%=3.6%. That means, following this program group, out of 100 attempts, "premature ejaculation" would occur fewer than 4 times. This is absolutely an astonishing result. Even for choosing gigolos, with such efficiency, even Empress Wu Zetian herself would probably be satisfied.
Now, the key question becomes: how to find these three mutually independent programs. First, technical indicators all purely involve price and volume inputs, so they're not independent of each other — you only need to select any one technical indicator to construct a trading program. For more skilled individuals, a candlestick chart with moving averages and volume is more meaningful than any technical indicator. Second, no stock is independent — in the overall stock market, every stock exists within a price-ratio relationship. Changes in this price-ratio relationship can also constitute a trading system. This trading system is related to the flow of market capital, and any system related to market capital flow cannot be independent of it. Finally, you can choose fundamentals to construct a "premature ejaculation" identification program. But these fundamentals aren't simply about company earnings and such. As this ID mentioned in earlier installments, things like Air China's President Li being military-born and thus unwilling to let his company's stock languish below IPO price and lose face, or put warrants basically never being allowed to be exercised — these are the more important fundamentals. This requires deeper understanding of market participants and human nature to master.
Of course, the three independent programs above were just casually written by this ID. Anyone can design their own independent trading program groups, but the principle is the same: the three programs in the group must be mutually independent. For example, market sentiment indicators and capital flow are essentially the same thing; various technical indicators are all mutually correlated, and so on. If you combine three non-independent programs, it's completely meaningless. It's like someone telling you a gigolo with a big nose won't "prematurely ejaculate," another telling you big ears prevent "premature ejaculation," and a third saying lots of facial hair prevents "premature ejaculation." If you really selected based on those three criteria, I reckon even Empress Wu Zetian's wet nurse's neighbor's wet nurse's neighbor's wet nurse's wet nurse's wet nurse would be unsatisfied.
Let me use this space to talk about how to read this ID's articles. This ID is not a stock commentator and won't recommend specific stocks, so those who come here hoping to learn about specific stocks — don't waste your time. Think about it: someone who truly has the skill is too busy making money to be a stock commentator. Here at this ID's place, stocks are just one small item among many. I just hope that those who come here also learn how to make money. The so-called six arts — if you can't make money in an economic society, can you even call yourself human? When reading this ID's articles, you must learn the methodology. Of course, this ID may intentionally or unintentionally reveal certain things, but you must have analytical ability — you must thoroughly understand the methodology. For example, on October 24th I told you a principle for entering call warrants. On the 26th, Wuhan Steel call warrants launched massively, going from over 0.3 yuan to over 1 yuan in 2 weeks — nearly quadrupling. If you can truly grasp the methodology this ID describes, such opportunities can be seized.
As for the actual stock market, this ID has repeatedly said in earlier posts: as long as it's a bull market, all stocks will perform. The past few days everyone might have been annoyed by bank stocks because nobody owned them, but starting yesterday everyone was happy because bank stocks stopped moving and other stocks started moving. Don't resent bank stocks — the day they truly top out, the market won't be doing well either. They're the red flag. As long as you all see the red flag still flying, the various base areas can continue their rotational campaigns. Stock movements follow patterns — study hard, and all of this can be within your grasp. As for those saying this ID is trying to show off, such nonsense isn't even worth refuting. The things this ID has done in the investment market are so impressive they exceed all of your imaginations combined — does this ID need to show off to you? This ID is simply revealing some things to liven up the blog atmosphere, nothing more.
Replies
缠中说禅 2006/11/22 12:16:41
[Anonymous] 快
2006-11-22 12:18:40
Can the Beijing North Star mentioned on November 16th also be understood as being positioned from 3-4 yuan to above 10 yuan?
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This ID is not a stock commentator. You need to learn to read trends yourself.
缠中说禅 2006/11/22 12:19:52
[Anonymous] 快
2006-11-22 12:18:40
Can the Beijing North Star mentioned on November 16th also be understood as being positioned from 3-4 yuan to above 10 yuan?
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This ID is not a stock commentator. You need to learn to read trends yourself.
缠中说禅 2006/11/22 12:25:08
[Anonymous] nn
I greatly admire the host's fresh thinking and great wisdom, but there's one thing I don't understand. Why did the host say buying CSIC at over 15 yuan was rational? I'm not asking whether CSIC is worth that price now. What I want to know is: if I had bought at that price, and everyone knows what happened afterward, my question is — during this months-long process, what would have been the optimal handling strategy?
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Buying CSIC at the opening was certainly rational — it was the first IPO of its kind, and the opening price wasn't too high. The subsequent price action was caused by China's peculiar regulatory management. But buying at 15+ yuan at the opening, you could have exited at 18-19 yuan easily. Since the situation took an unexpected turn, the natural choice was to exit. This goes back to the principle above — when buying stocks, you absolutely must not chase highs. This way, if something unexpected happens, exiting is simple.
缠中说禅 2006/11/22 12:26:19
[Anonymous] 冰火
2006-11-22 12:19:49
The message on the message board.
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I don't see any with your name.
缠中说禅 2006/11/22 12:27:39
Oh, sorry, didn't look carefully. Turns out you changed your name.
缠中说禅 2006/11/22 12:32:44
Boiling Water Deep Fire
2006-11-22 10:58:10
Thanks for the guidance, master. I'm that "Ice Fire" person. I think I roughly understand your point. If Y is the put warrant exercise price and X is the call warrant exercise price, then the company, for its own interest, will try to ensure the stock price on exercise day is no lower than Y. So the final price of the call warrant will be no less than Y-X. Therefore, as long as the call warrant price drops into the range below (Y-X), it's relatively safe. Is that the idea?
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It doesn't necessarily have to drop into that range — it basically won't drop into that range. A position somewhat above that is fine. That's the floor — basically won't be broken. So you have an almost absolutely safe standard. Like with Wuhan Steel recently, the almost absolutely safe line was 0.21 yuan, and the actual bottom was at 0.35 yuan. So you're risking at most 30% to bet on 300% profit — of course you can enter under those conditions.
缠中说禅 2006/11/22 12:35:59
Chán Zhōng Tīng Chán
2006-11-22 12:26:59
Already entered 580003 and 580002, thanks.
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The position at which you're entering now isn't great — there's some risk. It's a mid-course entry. Once a second wave of increase appears, you absolutely must find the right timing to sell. For warrants, that timing is when massive volume appears.
缠中说禅 2006/11/22 12:38:17
[Anonymous] 快
2006-11-22 12:34:15
My daughter just turned two this month. Starting from now, may I ask the number goddess to "design a program" — in 20 years, how could I cultivate her command ability to even a fraction of yours?
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Sorry, this ID has never raised children. Just thinking about children gives me a headache.
缠中说禅 2006/11/22 12:47:46
[Anonymous] 伤心太平洋
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The main issue is your entry timing was wrong, or your entry motivation was wrong. When entering, you must first decide whether it's a short-term or mid-term entry. If it's mid-term, you should plan for an operation period of at least two months. The motivation for entry is particularly important for investing — this will be discussed later.
缠中说禅 2006/11/22 12:50:05
[Anonymous] 朝阳一小猪
2006-11-22 12:43:51
Amazing person! But how do you actually design the program? You can't expect all of us to go learn stock analysis programming! Even if we could learn it, by the time we finish studying and researching, the bull market would be over. Ordinary people can only look at stocks one by one — the workload is enormous!
I've heard there's some stock analysis software called Flying Fox Trader or something that lets users define their own indicators for stock screening? I'd like to know how the blogger does it — please don't hold back!
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It's not designing a computer program — it's thinking through a systematic method. Don't expect some secret weapon. Please read it again carefully, digest it slowly, and you'll grasp something from it.
缠中说禅 2006/11/22 12:50:45
Market's open, heading out. See you.
缠中说禅 2006/11/22 12:52:53
[Anonymous] 飞龙
2006-11-22 12:49:47
The host probably doesn't lack money — so why spend so much time trading stocks?
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Trading stocks doesn't take much time. You only need to watch stocks during bull markets. This ID, from 2001 to 2005, four years, didn't look at stocks even once. Even now when I watch, it's only 4 hours a day. This isn't about money but an intellectual challenge. For this ID, stocks are an intellectual game — a great way to relax.
缠中说禅 2006/11/22 12:53:22
Market's open, heading out. See you.
缠中说禅 2006/11/22 14:27:22
Friendly reminder: the biggest short-term risk for the market is the gap between 1972 and 1977. After all sectors have completed one round of rotation, short-term oscillation is inevitable. Be mentally prepared.
缠中说禅 2006/11/22 14:35:16
[Anonymous] 妖女的文章写的
2006-11-22 14:16:39
A bit arrogant, but the attitude when replying to readers' questions is still decent. I also have a few questions to ask:
Regarding your so-called 3 conditions that can be multiplied together for stock selection, I still don't quite understand the second point. What exactly is the market's price-ratio system and trading system? Could you be more specific? Is it referring to the current market hot spots? Like the recent banking and large-cap stock surge, then now second-tier blue chips and non-blue chips — is that what you mean? Your third condition seems relatively simple, but how would ordinary investors know! Retail investors' information networks are terrible!
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I'll answer your question tonight. After 3pm I have a negotiation and must leave. See you.
缠中说禅 2006/11/22 16:50:33
[Anonymous] 中银国际
2006-11-22 14:41:36
Oh no, there really is a dive now! Already dropped 30 points from the high. The host is truly a deity.
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Oscillation means shakeouts. Skilled traders can use the shakeouts to play the rotation game. The market oscillates, but individual stocks don't necessarily oscillate — stocks making new highs will still be plentiful.
缠中说禅 2006/11/22 17:02:16
[Anonymous] 妖女的文章写的
2006-11-22 14:16:39
Regarding your so-called 3 conditions that can be multiplied together for stock selection, I still don't quite understand.
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Review your middle school probability.
The second point, what exactly is the market's price-ratio system and trading system? Could you be more specific? Is it the current market hot spots? Like the recent banking and large-cap stock surge, then now second-tier blue chips and non-blue chips — is that what you mean?
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No. Individual stocks in the market have price-ratio relationships — this is the overall structure of the market. To grasp this, you must understand the market's total structure. Changes in price-ratio relationships are the most important thing. This will be discussed later.
Your third condition seems relatively simple, but how would ordinary investors know! Retail investors' information networks are terrible!
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A lot of information isn't secret at all — the key is whether you're paying attention. It's not about blindly listening to rumors, but carefully analyzing information. You should be using the information, not letting the information use you.
缠中说禅 2006/11/22 17:10:13
[Anonymous] 飞龙
2006-11-22 16:15:58
I've been trading stocks for N years now. Got lucky and made a few million, but I keep feeling I can't trade stocks my whole life. Now I'm thinking of starting a real business, but don't know what to do; working for someone else isn't an option; writing a blog — I don't have the host's talent. After years of Communist Party education, I have no faith. The more money I have, the emptier I feel. Painful! Please enlighten me, thanks!
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First, buy your house and car. Set aside enough for several decades of living expenses, child-rearing costs, etc. in government bonds. Plus some basic insurance.
After handling all the above, if you still have spare money, continue trading stocks.
When you have time, come to this blog and read "The Analerta," read "Chan in Meditation." If you go through life without gaining enlightenment, that's truly a life wasted. You can also achieve enlightenment through stock trading — trade and contemplate simultaneously.
Don't start a real business. Stock traders rarely succeed in running actual businesses. Running a real business is too exhausting, and the risks are far greater than stocks. Stock risks are something one person can control; business risks — nobody can control.
缠中说禅 2006/11/22 17:11:12
[Anonymous] Jim
2006-11-22 16:37:35
Nowadays securities analysis software is getting more and more advanced — they all have stock recommendation features, right? Download multiple analysis programs from different companies. When analyzing a stock, if 7 out of 10 recommend buying, then buy. And vice versa.
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That's essentially no different from having just one system. All analysis software operates on the same principles — they're all basically the same thing.
缠中说禅 2006/11/22 17:12:06
Watched the market for four hours, negotiated for one hour. This ID is going to find something good to eat now. See you.
缠中说禅 2006/11/22 17:14:32
[Anonymous] 倒霉呀！
2006-11-22 16:29:52
Since stumbling upon this place last week, I can't stop myself from visiting every day.. haha.. I truly, truly admire the host!
This year's big bull market got me excited, and in May I fearlessly jumped into non-ferrous metal stocks right when they couldn't go any higher. The result? In this great market where everyone says you can make money with your eyes closed, I actually lost 40%. Now despite the market doing well, I'm still deeply trapped. Haha..
After reading the host's articles, I feel like I just don't have the brain for stock trading!
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Caught your post just as I was leaving — might as well answer it. Take it as a lesson. From now on, never chase highs to enter any stock. Always enter when adjustments have ended and the stock is about to launch — this is the best way to survive in the market.
缠中说禅 2006/11/22 17:15:38
Confucius the Second continues tomorrow. See you.
缠中说禅 2006/11/22 18:27:27
Haven't gone to eat yet. Was browsing online, went to Uncle Confucius's place to stir up some trouble:
Chán Zhōng Shuō Chán
2006-11-22 18:12:44
风吹万树暮云低，人海孤行影自迷。(Wind blows myriad trees, dusk clouds low; alone in the crowd, one's shadow wanders lost.)
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Passable.
寒夜无眠非不困，晴天欲雨有何奇。(Cold nights sleepless — not for lacking fatigue; clear skies threatening rain — what is so strange?)
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Clumsy. The character "有" has poor tonal quality — should be "又," going tone.
愿闻金鼓飞黄鹤，岂爱玉笼锁碧鸡。(I'd hear the war drums, ride the Yellow Crane away; why love the jade cage that locks the Green Rooster?)
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"愿闻" (I'd hear) — too explicit.
温酒一杯且稍候，凤凰台上唱虹霓。(Warm a cup of wine and tarry a while; atop Phoenix Terrace, sing of the rainbow.)
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"温酒一杯且稍候" (Warm a cup of wine and tarry) — clumsy.
Chán Zhōng Shuō Chán
2006-11-22 18:19:00
Originally wanted to compose a response poem using the same rhyme scheme, but seeing Uncle Confucius not following Pingshui rhyme — mixing the fourth (支) and eighth (齐) rhyme groups — I immediately lost interest.
Uncle Confucius writing poetry — let's not get into that.
缠中说禅 2006/11/22 18:28:54
[Anonymous] 射男哥哥
2006-11-22 17:57:29
Reviewing the Number Lady's stock wisdom: Trading stocks is like making love; choosing stocks is like choosing a gigolo. Selling too early is like a man's premature ejaculation; highs are like a woman's climax. Limp stocks are like ED men; adjustment periods are like a man's refractory period; in a big bull market you don't need protection... Throughout history, East or West, unheard of! Though the Number Lady has never raised children (26 years old, assets in the hundreds of millions, female PhD), if she really does have a son or daughter someday, how could she let them see such writing? Just thinking about it sends chills down my spine! "He who does not think far ahead will find trouble near at hand." One who lacks deep examination, reflection, and planning will inevitably be entangled in calamity.
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This ID is called "Chan in Meditation." The child won't know who "Chan in Meditation" is, and by the time they find out, Sina will probably have gone bankrupt.
缠中说禅 2006/11/22 22:24:08
[Anonymous] 不玩喽
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It's not that serious. Probably your post had sensitive words.
缠中说禅 2006/11/22 22:26:33
[Anonymous] 八卦
2006-11-22 22:16:36
How come my post I just made is gone? I didn't use foul language??
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This ID never deletes posts — everyone here knows that. Maybe your post contained a link or something else Sina doesn't accept.
Isn't your post still there above?
缠中说禅 2006/11/22 22:33:31
[Anonymous] 朗月无花
2006-11-22 18:47:32
The host usually only comments right after posting. It's rare to see comments at 6pm.
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The temperature suddenly dropped today. It's warm as spring at home, so I don't feel like going out. Writing about Confucius the Second while browsing the internet.
Mission accomplished. Will upload tomorrow at noon.
Good night, everyone.
缠中说禅 2006/11/22 22:44:12
[Anonymous] CC
2006-11-22 22:34:07
The blogger's here! Could you explain the question from earlier? Thanks in advance. I'm new to your blog, still unfamiliar with some of your views, though I agree with certain concepts you've expressed.
2006-11-22 18:54:52
I don't quite understand one of your famous sayings. Why do you say trading stocks is like making love? What's the comparable analogy between the two?
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Just saw your post — looks like I can't leave yet after all.
Haven't the past several chapters been making analogies continuously? This kind of thing can only be grasped through intuition, not explained in words. There's no intention to turn this into an adult blog here, so just take the humor, practice more, and experience more.
缠中说禅 2006/11/22 22:49:12
Alright, it's late. Heading off. See you.
缠中说禅 2006/11/23 11:56:22
[Anonymous] 青皮六
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This ID doesn't look at the fundamentals that most people look at. I only look at what this ID considers to be the real fundamentals — for example, the fact that Air China's President Li is military-born.
缠中说禅 2006/11/23 12:10:28
Yesterday this ID's friendly reminder about being mentally prepared for oscillation during trading — after yesterday afternoon's subsequent dive and this morning's oscillation, the market is getting closer and closer to a real adjustment.
Note: the adjustment this ID refers to is only short-term. Good individual stocks may even use the adjustment as a launch pad.
Before entering the adjustment, there's a very high probability the market will first create a bull trap. The market left a breakout gap at 1923-1925, and a continuation gap at 1972-1977. If it's a bull trap, once an exhaustion gap appears, that's the alarm sounding.
缠中说禅 2006/11/23 15:29:51
From now on, please post questions in the newest post. Otherwise this ID won't check old posts and won't know someone asked a question.
缠中说禅 2006/11/23 15:33:08
[Anonymous] 信禅人
2006-11-23 12:42:09
Well spoken, very thoughtful. I'll visit often from now on. May I ask: how far can the stock market go? Can resource stocks still be entered? Such as Yuanshui (600649)?
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Everything that hasn't performed yet will eventually perform, and this is no exception. Yuanshui just reached the annual moving average. If it tests the annual MA and doesn't break below, you can enter. But in the short term, watch out for the impact of a market-wide adjustment. If it can launch counter to the market adjustment, the momentum will be stronger. If it just follows the market, then it won't be very interesting.
缠中说禅 2006/11/23 15:37:09
[Anonymous] 一声叹息
2006-11-23 13:15:39
Already entered 600267 and 600868.
Please evaluate, blogger. Thanks!
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The first one hasn't reached the annual moving average yet. Going forward, it's better not to enter stocks like that. But since you've already entered, just hold. After all, everything that hasn't launched will eventually launch — their turn will come. The second is consolidating at the annual moving average. Be patient and wait for the consolidation to complete.
缠中说禅 2006/11/23 15:38:06
Attention:
From now on, please post questions in each day's new post. This ID rarely checks comments on old posts, and missing them would be a shame.
缠中说禅 2006/11/23 21:04:07
[Anonymous] Xiao Ming2
2006-11-23 19:57:41
Why was my post deleted?
I was just asking about the market direction!
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This ID never deletes posts. Maybe there was something in your post that got it axed by Sina.
缠中说禅 2006/11/23 21:05:49
Please, everyone, don't ask questions in old posts. Once a new post is up, please move there. Otherwise this ID can't keep up. Thanks.
缠中说禅 2006/11/22 12:14:35
[Anonymous] 冰火
2006-11-22 12:05:49
First! I left you a message, please check! Thanks ^_^
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What message?