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Teaching You to Trade Stocks 99: The Dual Surface-Interior Relationship of Trend Structure 3

2008/2/18 16:19:16

In trend structure, the most important thing is the existence of the neutral/ambiguous zone. Some may think that the existence of this neutral zone is a result of theoretical imperfection. In fact, this is typical one-track thinking. For such thinkers, the world is mechanical, with only one mechanically precise result at any given moment. But in reality, the world is more quantum in nature, governed by uncertainty. The existence of the neutral zone precisely reflects this characteristic of market movements objectively.

The existence of the neutral state reflects the indeterminacy of trend movements during their growth phase. This indeterminacy has no impact whatsoever on trading, because neutral states can all be treated as hub oscillation consolidations — just trade according to hub oscillation principles.

Many people get confused as soon as they encounter a neutral state, because at this point, you cannot give a definitive classification of the trend. Note, this doesn't refer to same-level classification, but rather general classification. For example, after a line-segment-type rally shows near-divergence, a 1-minute hub will necessarily first appear, and simultaneously a neutral state is entered. But you cannot say this movement must necessarily be of the 1-minute type, because in the most extreme cases, even the connection between two yearly hubs can be a line segment, or even a gap — both are entirely possible in practice. Therefore, the theory must encompass these situations, and these situations are quite common — they are not some exotic problem.

Furthermore, according to the associative principle, the movements connecting hubs don't necessarily have to be complete trend types. That is to say, after a line-segment-type rally, the second sub-type hub may be absorbed into the hub of the neutral state. In other words, a+b+c+d+e+f = a+b+c+(d+e+f), where a+b+c+d+e is a line-segment-type rally, the overlapping portion of c+d+e constitutes the final sub-type hub, and f is the pullback after near-divergence. In this case, a 1-minute hub can immediately form, and then the market can directly continue rising — forming a 1-minute rally is completely reasonable. Because in the final classification, a+b+c+d+e must be broken apart.

Therefore, in general classification, if within the neutral state a corresponding hub has already formed starting from the previous divergence point — for example, after a+b+c+d+e+f there follows g and h, where f, g, h form a 1-minute hub — then the entire classification can become a+b+c+d+e+(f+g+h). This way, the original line-segment-type rally can be preserved.

If what follows, including d+e+f, extends to 9 segments and then moves directly upward again, in the classification, you must first ensure the establishment of a 5-minute hub. In other words, the principle of classification is clear: you must ensure the establishment of the hub, and under this premise, you can apply the associative principle to keep the movements connecting hubs in their most perfect form.

From this, because of this situation in classification, we can very clearly know that the greatest feature of market movements is: the level of the movement connecting hubs must be smaller than the hub. In other words, after a movement of a certain level completes, it necessarily faces oscillation from at least one level higher. For example, after a 5-minute rally ends, there must be at least a 30-minute hub oscillation. This is the inevitable conclusion for any movement — no movement can escape it.

With this inevitable conclusion, for any movement, its subsequent movement has an inevitable predictability — namely, the level of the subsequent movement must be at least greater than the level of the current movement. Here, a very critical issue is the position of the first hub oscillation of this larger-level movement, which is extremely crucial — this is the key to diagnosing market conditions.

First, any subsequent higher-level hub oscillation must at least fall within the range of the last hub of the previous trend type. This is an inevitable conclusion. In other words, as long as this hub oscillation falls within the last hub's range, it's normal behavior — it is healthy. That is to say, this neutral state is healthy.

But once the hub oscillation returns to the second or even earlier hub of the original trend type, then the corresponding neutral state is unhealthy — it is dangerous. And the last hub of the original trend becomes a critical reference position.

Note, danger is relative. For the neutral-state danger of an original downtrend, this means the rebound strength is strong enough — which is good news for the bulls.

Combining with fractals: for example, the appearance of a daily fractal implies that within the stroke, the corresponding smaller-level movement contains a large hub. Therefore, the position of the hub corresponding to this fractal is very critical — it almost determines whether this fractal is the final true top or bottom.