Teaching You How to Trade Stocks 53: Further Clarification of the Three Types of Buy/Sell Points
2007/5/23 8:47:18
Since more and more newcomers are arriving, please first read through the entire course from the beginning before discussing questions. Also, when analyzing, you must understand the recursive definition of hubs — this is the foundation of foundations. If you can't even get this straight, haven't thoroughly understood it, then it's simply impossible to proceed.
Furthermore, regarding the issue of levels — if you can't wrap your head around it, think of it as using microscopes of different magnifications to examine a drop of water. This naturally reveals different degrees of detail, and levels relate to movements in the same way. A simplest example: three 5-minute level movements overlapping form a 30-minute hub. Standing at the 30-minute level perspective, each 5-minute movement can be treated as just a line segment, with no internal structure. The high and low points of these line segments are the high and low points of the corresponding 5-minute movements. But standing at 5-minute's sub-level of 1-minute, the high and low points of each 5-minute segment aren't necessarily at the beginning or end positions of the 5-minute movement. Of course, by recombining at the 1-minute level using the associative law, you can always place the high and low points at the beginning or end positions. But standing at the tick level, this again doesn't work. Why? Because when we recombine at the 1-minute level, we've actually already treated the tick-level structures as line segments without structure. This is perfectly natural — just like when studying monkey behavior, if you also considered the trajectory of electrons inside atoms inside molecules inside each cell, then a monkey wouldn't be a monkey anymore. So this principle must be clear: for example, when you decide to operate and observe at the 30-minute level, you've actually already assumed that all completed 5-minute movements are treated as line segments.
Note: this doesn't conflict with the nested interval theorem. When 30-minute enters a divergence segment, using a higher-magnification microscope to examine that segment is perfectly natural. The key is knowing which magnification to use when. For another example, when examining 30-minute third-type buy/sell points, since this involves sub-level 5-minute judgment, you can't just use the 30-minute microscope — you similarly need to switch to 5-minute. But regardless of how these microscopes are switched, one principle remains unchanged: when you use a microscope of one level, you've already treated the sub-level as line segments — that is, the sub-level is not under observation at that level.
Of course, there exists the most fine-grained and rigorous method: starting from the lowest-level ticks and progressively combining upward for analysis. This eliminates the above issues, but it's too exhausting and completely unnecessary. Theory is meant to be used. As long as the theory's foundations and absolute nature aren't violated, one should of course choose the simpler application. This issue must be understood; otherwise, switching between 30-minute, 1-minute, and then the annual line — you'll dizzy yourself.
Secondly, regarding divergence versus consolidation divergence: the former has the most fundamental significance, while the latter is merely an extended application using the former's strength analysis method, primarily used in strength comparisons related to hub oscillation. Note: in a+B+c, the consolidation divergence between a and c can actually all be viewed as oscillation of hub B. Even though B hasn't appeared yet when a exists, it doesn't hurt to view it this way.
As for first, second, and third buy/sell points — at their root, they can all be attributed to first-type buy/sell points, just at different levels. So why not just discuss first-type buy/sell points? Because doing so would involve different levels, equivalent to simultaneously using microscopes of different levels to observe, which is too chaotic. In practice it would be even more chaotic, because buy/sell points of different levels have different significance. Therefore, you must unify your study at one level — that's why three types of buy/sell points are distinguished. Of course, the most thorough operation would be operating at the tick level, capturing every finest fluctuation. But practically this is impossible — humans need reaction time, there are transaction costs, and so on. Therefore, ignoring certain fluctuations and operating uniformly at a larger level is the inevitable requirement of objective conditions. This ID's theory is not some a priori theory — it's a theory that fully reflects the present-moment operational feasibility given objective conditions. This must be thoroughly understood. Therefore, the three types of buy/sell points are all indispensable — you can't say one is more important than another. Standing at the same level, all three are important.
The first-type buy/sell point is the divergence point at that level — this suffices for the vast majority of situations. But there's one situation where it doesn't work: the repeatedly emphasized small-level-to-large-level transition. Why? Because when a small level diverges, it doesn't reach that level's first-type buy/sell point, so no operation is needed. For this situation, the second-type buy/sell point supplements it. This buy/sell point isn't specifically designed for the small-to-large transition. Generally speaking: after a high point, one sub-level down then one sub-level up — if it doesn't make a new high or shows consolidation divergence, that constitutes a second-type sell point. The buy point situation is the reverse. So, when a first-type buy/sell point exists, the first type is optimal and the second type is just a supplement. But in small-level-to-large-level transitions, the second-type buy/sell point is optimal, because in that situation, there's no first-type buy/sell point at that level.
Standing from the perspective of hub formation, the significance of the second-type buy/sell point is that a larger-level hub must inevitably form, because there's at least one more sub-level segment to come that necessarily overlaps with the previous two. As for the third-type buy/sell point, its significance is dealing with hub completion. When a hub at one level ends, it faces just two situations: transitioning to a larger hub, or continuing up/down until a new hub of that level forms. The third-type buy/sell point tells you when this happens. Between the second and third buy/sell points is all hub oscillation — there won't be any buy/sell points at that level during this period. Therefore, if you participate in buying/selling during this time, you're using buy/sell points from lower levels.
In actual operations, the most decisive approach is to not participate in hub oscillation at all, only buying and selling at predetermined buy/sell points. But for large capital, or for capital with sufficient operation time and proficiency, hub oscillation can of course be participated in. If the hub's level is large enough, the profits generated are often larger and more stable. In a trending situation, small-level buy/sell points don't necessarily need to be participated in, but if technique is particularly good or capital is large, they can likewise be participated in. This is just to improve capital utilization, accelerating the process of cost reaching zero or increasing share count. Of course, this small-level participation relates to the capital capacity at that level, which involves position allocation and control — we'll discuss that later.
Appendix:
Nothing much to say about the market today. It went right from the open to re-test yesterday's gap position, then came back. Just look at the behavior at the two times 0945 and 1045 at the 4129 level, and you'll know market movement has a language — such clear language must be understood. After 1045, it traded sideways at 4129 for 7-8 minutes, then decisively headed up without looking back. Did you see that? Of course, the breakout of 4129 still needs confirmation, etc. But the market's movement right now is very simple — just watch the 5-day moving average.
Regarding individual stocks, even less to say. Just that if anyone wasted this ID's early-morning hint yesterday, that's rather unfortunate. This ID doesn't usually say anything early in the morning.
Chán Zhōng Shuō Chán 2007-05-22 08:49:55 Everyone please note: the stocks this ID mentioned yesterday were just examples. Since some are very small cap — for instance, this ID is fiddling with a stock whose content is similar to that zinc-germanium one, but the market cap is really too small to mention. Mentioning it would cause chaos. This isn't 2000 points anymore. For any stock, you must first pay attention to risk and enter at large-level buy points. Small-cap stocks can't be bought randomly — otherwise the price action gets chaotic and needs a washout. Everyone should ideally buy stocks following the general approach, and preferably continue holding stocks that are already deeply profitable but still have great potential. This reduces oscillation risk. Otherwise, if everyone rushes to switch stocks all at once, that's total chaos. Small-cap stocks that get chaotically rushed need adjustment; large-cap stocks can handle the rush without issues. So everyone's been locked in on those. As for those who weren't fickle and continued holding stocks already deeply profitable with great potential — look at how many of those 16 stocks had powerful breakouts today? This ID never wastes words, so that's all.
Replies
缠中说禅 2007/5/23 15:33:27
Nothing much to say about the market today. It went right from the open to re-test yesterday's gap position, then came back. Just look at the behavior at the two times 0945 and 1045 at the 4129 level, and you'll know market movement has a language — such clear language must be read. After 1045, it traded sideways at 4129 for 7-8 minutes, then decisively headed up without looking back. Did you see that? Of course, the breakout of 4129 still needs confirmation, etc. But the market's movement right now is very simple — just watch the 5-day moving average.
Regarding individual stocks, even less to say. Just that if anyone wasted this ID's early-morning hint yesterday, that's rather unfortunate. This ID doesn't usually say anything early in the morning.
Chán Zhōng Shuō Chán
2007-05-22 08:49:55
Everyone please note: the stocks this ID mentioned yesterday were just examples. Since some are very small cap — for instance, this ID is fiddling with a stock whose content is similar to that zinc-germanium one, but the market cap is really too small to mention. Mentioning it would cause chaos. This isn't 2000 points anymore. For any stock, you must first pay attention to risk and enter at large-level buy points. Small-cap stocks can't be bought randomly — otherwise the price action gets chaotic and needs a washout. Everyone should ideally buy stocks following the general approach, and preferably continue holding stocks that are already deeply profitable but still have great potential. This reduces oscillation risk. Otherwise, if everyone rushes to switch stocks all at once, that's total chaos.
Small-cap stocks that get chaotically rushed need adjustment; large-cap stocks can handle the rush without issues. So everyone's been locked in on those. As for those who weren't fickle and continued holding stocks already deeply profitable with great potential — look at how many of those 16 stocks had powerful breakouts today? This ID never wastes words, so that's all.
缠中说禅 2007/5/23 15:38:13
[Anonymous] stone
2007-05-23 15:35:01
Liverpool!!!!
The eternal Reds!!!!
Hope tomorrow belongs to the color red!!!!
==
No stocks tonight, only football. Shake hands.
缠中说禅 2007/5/23 15:43:40
[Anonymous] 比特小天使
2007-05-23 15:39:09
Hello, Sister Chan.
Will last year's liquor stocks still perform this year?
==
There've already been two daily-limit-up days — that's not performing? With that liquor, some new funds have entered recently, all because they missed the boat. Panicking now, they chose this stock that's barely moved recently and are carrying this ID's sedan chair. From this, it's not hard to understand why this ID says that after zero cost, you earn shares. Some stocks fundamentally don't need money in them to operate — eventually, plenty of people will carry the sedan chair for you.
Know what's most precious in a great bull market? Shares!
缠中说禅 2007/5/23 15:44:35
[Anonymous] 比特小天使
2007-05-23 15:40:38
Watching the game with you tonight.
Hehe.
==
Watching the same match together.
缠中说禅 2007/5/23 15:46:28
[Anonymous] 墨香小老虎
2007-05-23 15:43:10
Chán Zhōng Shuō Chán
2007-05-23 15:33:27
Regarding individual stocks, even less to say. Just that if anyone wasted this ID's early-morning hint yesterday, that's rather unfortunate. This ID doesn't usually say anything early in the morning.
==
Blogger:
I entered the equivalent 139 at today's lowest price.
If it had continued rising today, I wouldn't have entered.
Also: 1. My judgment on 802 was correct. But regrettably didn't choose it, today.
2. The newly entered stocks are all from my new capital.
Do you think my operations are correct?
Thank you.
=
If your judgment is correct, you should enter. Otherwise, what's the point of making the judgment? If you're worried about accuracy, even buying 100 shares is fine — it's for experiencing real operations.
缠中说禅 2007/5/23 15:58:08
[Anonymous] Sina User
2007-05-23 15:53:33
[Anonymous] 酒吧心情
2007-05-23 15:50:35
Today the Beijing People stock brought my cost
down to 15.5......
Thank you for the boss's technique......
Also watching the game tonight — I'm an AC fan......
I've decided to just play with a few stocks and study technique well.
The market is forever — once technique is there, anytime is an ATM......
===
Could you share how the Beijing People stock reduced your cost with today's rise-then-sideways-then-rise pattern?
==
Not every moment is appropriate for operating. Some levels are too small to operate on.
Note: unless your technique is particularly good and your trading channel is particularly smooth, don't participate in operations at too small a level. For people with average technique, operating at 30-minute level is quite comfortable — no need to run back and forth all day. At minimum, don't go below 5-minute. Especially for retail investors — with unsmooth channels, levels that are too small simply can't be operated on effectively.
缠中说禅 2007/5/23 16:00:37
[Anonymous] stone
2007-05-23 15:55:20
Back then, excluded from European competition --- first-type buy point
Last year, second-type buy point
Hope tonight is Liverpool's third-type buy point
Owen, Gerrard --- asset injection
Resting now. On a yellow mountain, watching a red match!
==
Honestly, without Owen, watching Liverpool feels a bit strange. Fortunately there's still Gerrard.
缠中说禅 2007/5/23 16:10:00
Attention!
Just scanned the replies above — some mention the issue of chasing highs. In this ID's theory, there's no such thing as chasing highs or not. There are only buy points and sell points. For a rising stock, if it's daily-level, at the latest you should enter at the third-type buy point — that's the safest, 100% profitable. If you missed it, then enter at a smaller level — 30-minute, 5-minute, even 1-minute. You can always find an entry position. The key is how to capture it. But the smaller the level, the harder it is to operate.
缠中说禅 2007/5/23 16:12:37
[Anonymous] Sina User
2007-05-23 16:03:45
Blogger, among the 16 stocks, only 432 seems to not have moved. Have you abandoned the nickel mine for the zinc mine?
==
After doubling, there needs to be an adjustment. Stocks have rhythm — you can't be reckless. When it's time to move, it'll naturally move.
缠中说禅 2007/5/23 16:15:35
[Anonymous] 缠迷
2007-05-23 16:10:37
Master Chan:
Is it okay to alternate between two stocks using the time difference for interactive trading?
=
Of course it's fine — the key is whether your technique is up to par.
缠中说禅 2007/5/23 16:20:03
[Anonymous] TITI
2007-05-23 16:13:02
Today I'd really like to hear MM's thoughts on that recent book by Li Ling about "The Analects." Could you share?
==
To be honest, our parents' generation — or rather, the generation that went to school during the Cultural Revolution — has gaps in their knowledge.
缠中说禅 2007/5/23 16:22:19
[Anonymous] 漂泊
2007-05-23 16:03:39
Hello, Master Chan. Since studying your theory, it's been going great — I can find buy points, but can never get a good handle on sell points. Still need to study more. Through your theory, I caught 600166 — 50% gain in one week. Many thanks, Master Chan!
==
No need to thank this ID. The skills are practiced by yourselves.
缠中说禅 2007/5/23 16:24:33
[Anonymous] christine
2007-05-23 16:21:21
Sister, please help clear up this confusion.
Thank you!
Regarding the question about whether the 5-day moving average breaks or not.
==
Generally you look for 3-day confirmation, but that's a bit slow to react. The key is still mastering the later theory. That's just a reference — especially for beginners, holding stocks by watching the 5-day moving average is relatively simple.
缠中说禅 2007/5/23 16:26:36
[Anonymous] JESSIE
2007-05-23 16:23:10
Because of sister, I'm also watching the game tonight. Watching the same game as sister — too exciting!
You might not have seen it, so I'll repost my question. Please excuse the repetition:
2007-05-23 15:50:48
Hello sister, I'd like to ask about ex-dividend and ex-rights. Many stocks rally in the days before the share bonus and then drop one or two days before the record date. After going ex-dividend/ex-rights, some continue rising and some continue falling. How do you handle this kind of movement? For example, 600479 — the record date is the 25th, it hit the daily limit yesterday, but dropped nearly one point today. Could you analyze it? If it's inconvenient, that's fine too. I understand. Thank you!
==
This is all reflected in the movement — nothing special. The analysis is the same as any other stock. The only difference is that before and after ex-rights, there's a big gap, so in the short term, you can do a rights-adjusted analysis. But over longer periods or when looking at larger levels, you can ignore it.
缠中说禅 2007/5/23 16:28:55
[Anonymous] christine
2007-05-23 16:25:38
That "perseverance and virtue" stock — I tried reducing costs twice, failed 50% of the time, so cost went up instead. Reducing cost on my own large-cap stocks goes much more smoothly. Looks like I should stick to using large-cap stocks for cost reduction.
==
For unfamiliar ones, you can sell first and buy later. Selling wrong doesn't matter — at least you won't lose money. There are plenty of stocks. No need to hang yourself on one tree.
缠中说禅 2007/5/23 16:30:04
[Anonymous] 天山飞狐
2007-05-23 16:28:37
May I ask, Sister Chan: agricultural stocks also launched collectively today. Has the second round of growth stocks in the bull market begun?
==
The first round of the great bull market hasn't even ended yet — how could there be a second round? But within the first round, there can also be time for growth stocks to perform. Overall though, they're not the main act.
缠中说禅 2007/5/23 16:33:50
[Anonymous] 请教博主
2007-05-23 16:28:10
May I ask the blogger: if there's a stock that on the 1-minute chart shows continuous straight-up, straight-down wave patterns, where consecutive 3 unit K-lines have no overlapping portion — doesn't this mean no 1-minute hub can form, which means there's no trend? How should this be understood?
==
That's natural, but ultimately a hub must form. But note: if you don't treat 1-minute as the lowest level, overlapping of 3 unit K-lines doesn't equal having a hub.
缠中说禅 2007/5/23 16:41:50
[Anonymous] 花儿
2007-05-23 16:33:36
Teacher, please answer Senior Student Dapan's question — we want to ask too: [Anonymous] 大盘
2007-05-22 17:46:17
Please, blogger:
On the 1-minute chart, what do you typically use to determine the sub-level of a 1-minute hub? Although the lowest level can be self-defined, I feel it's better to align with the blogger's actual operations and teaching for easier exchange.
For example, for the actual 1-minute movement chart with MACD that I captured (see figure 1 at the URL below):
www-itai-org-cn/zsid/zs7-htm (replace - with .)
Starting from the 18.59 high point, which endpoint would you consider as the end of the first sub-level segment of the 1-minute chart?
I also often make this mistake — many times I rush in at d5g5, and the aggressive ones even rush in at d4g4.
Please, teacher, don't mind the trouble and grace us with an answer.
==
This question — since images can't be posted here, we'll answer it in Friday's lesson. The chart will be included in the post so everyone can see it more easily.
缠中说禅 2007/5/23 16:51:18
[Anonymous] 请缠主同学们看看
2007-05-23 16:36:51
"Now that the price has doubled, Chán Zhōng Shuō Chán says to reduce her own cost to zero — this is of course meaningful for herself. But it has no impact on the company's value or the fund company's profits. A company's stock won't plummet just because someone's cost is zero, nor will it surge because someone's cost is 100.
What are the laws? They don't change with human will. As fund managers, we need to recognize the essential things. If another operator's jumping up and down in the stock price can affect our valuation of the company, and thereby affect our operations — that's too amateur. On this point, we should have learned from QFII long ago. Look how they talked bearish while buying aggressively during the reform, and now talk bearish while selling — they lie, but never get fooled by their own lies.
For funds, there's naturally no need to defeat Chán Zhōng Shuō Chán. Why fight her? We just need to beat the market. If we can't even do that, then go buy government bonds — at least we can still collect management fees.
The reason someone as clever as Chán Zhōng Shuō Chán still makes the wild claim of wanting to defeat funds — nothing else, just a confusion between funds and market makers. If a fund unfortunately operates like a market maker, things are fine during good markets, but in bear markets it can still be wiped out. But what's wiped out is the market maker, not the fund!"
Of course, if a fund has enough patience and puts a lot of capital into Haihong, they could also defeat Kangjian. Let it jump however it wants — wait three years and see. Someone kept asking me to comment on Haihong — the original assessment still hasn't changed.
=======
The above is from a blog I follow closely. A new article. Please take a look.
--
This person completely missed this ID's point. What this ID means is that funds' source of capital is problematic. A carefully designed plan — one large redemption wave — is enough to bring down some funds. Moreover, this kind of event isn't hard to trigger during a major adjustment. Actually, laid-off fund managers are nothing new. Laid-off funds — what's so strange about that?
缠中说禅 2007/5/23 16:52:08
[Anonymous] 水房姑娘
2007-05-23 16:51:14
Chan M, the media is mostly demonizing the stock market these days.
=
Then we'll demonize the media.
缠中说禅 2007/5/23 16:54:14
[Anonymous] 睬睬妹妹
2007-05-23 16:45:47
I've been coming here for a while now. Reading the Chan blog has become an important part of my life. Among your students, which ones have left a deeper impression on you? Luoguo, Xiaoming, Shot Man, Wild Song, CCTV, Dapan, White Magnolia, Night Rain...... Some have already left. Do you sometimes think of them?
==
This ID treats everyone equally here. The hope is to help as many people as possible.
缠中说禅 2007/5/23 16:56:44
Alright, this ID needs to take a break, then go find some good food. Tonight there's a big match!
Heading out, see you later.
缠中说禅 2007/5/23 8:49:04
Market commentary will be appended at close. Heading out first, see you after the close.