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Teaching You to Trade Stocks 101: Q&A 1

2008/3/4 16:14:02

I've realized that by this point in the course, although there's still much content ahead, many people haven't fully grasped some of the earlier material. So, I'll hold Q&A sessions from time to time. If you have questions, try to consolidate them, and this ID will answer the typical and important ones when time permits.

  1. The Issue of Second-Type Buy and Sell Points

Simply put, let's discuss the second-type buy point. The sell point situation is just the reverse.

The first-type buy and sell point is the divergence point, and the third-type buy and sell point is the hub-breaking point — these are very clear. But this second-type buy and sell point seems to still confuse many people.

Actually, the so-called second-type buy point is the ending point of the sub-level downward movement that occurs when the market retests or pulls back after the sub-level rebound from the first-type buy point ends. This definition was stated very clearly before. For example, after a 5-minute bottom divergence, the 1-minute upward movement from the first-type buy point ends, and then there's inevitably a 1-minute downward movement — the ending point of this movement is the second-type buy point.

So, what are the possible scenarios for the second-type buy point?

I. The Strongest Scenario

The second-type buy point happens to form the third-type buy point of the oscillation movement starting from the last hub of the original downtrend — in other words, the second and third-type buy points merge. This is the strongest kind of movement. This scenario generally corresponds to a V-shaped reversal with a rapid recovery, which is the most powerful.

II. The Weakest Scenario

The second-type buy point breaks below the first-type buy point — meaning the second-type buy point is lower than the first-type buy point. This is entirely possible. This generally forms a consolidation divergence, with subsequent movements corresponding to anything from trend-following platforms to expanding platforms, which will be discussed in later lessons.

III. General Movements

Movements between the above two extremes. In this case, the first, second, and third buy points are successively higher, each one higher than the last.

From the perspective of the last hub of the original downtrend, the first, second, and third-type buy points can all be seen as results of hub oscillation. Therefore, between the second and third-type buy points, there may exist more hub oscillation movements — they are not necessarily consecutive like between the first and second types. The oscillation buy points between the second and third-type buy points are generally not given special names, though they can also be considered as second-type buy points — this doesn't make much difference.

Note: the first and second-type buy points only exist during this recovery's neutral state. After the neutral state ends, all hub oscillations only involve third-type buy and sell points and hub oscillation buy and sell points — first and second-type buy and sell points no longer exist.

  1. All Trends Are Complete

This issue — I estimate nobody can truly understand it, because very few people here have studied modern mathematics. So for this kind of holistic problem, people can probably only be confused.

The so-called "all trends are complete" means that the recursive function corresponding to this ID's defined fractals, strokes, line segments, and different-level trend types can uniquely decompose any market movement.

The unique decomposition theorem is a core problem in any branch of modern mathematical theory. A theory that possesses a unique decomposition theorem is powerful. For example, when solving Fermat's conjecture, cyclotomic fields were used, but cyclotomic fields don't have a unique decomposition theorem — meaning unique decomposition doesn't always hold. So ideal numbers had to be introduced to make the unique decomposition theorem hold from the perspective of ideal numbers, thereby opening an entirely new chapter in algebraic number theory.

The most impressive aspect of this ID's theory is that it takes seemingly chaotic stock market movements and gives them a unique decomposition theorem — "all trends are complete." This is as groundbreaking as introducing ideal numbers to elevate algebraic number theory to a whole new level.

Without mathematical background, of course you can't understand these crucial points. Many people obsess endlessly over fractals, which only proves they haven't understood this ID's theory at all. Fractals are equivalent to a₀ in the recursive function — this can be designed completely arbitrarily, and however it's designed won't affect the proof of the unique decomposition theorem.

But the current design is definitely the best among all possible designs. It maximizes the probability of strokes appearing and eliminates the most random factors, making it easier to decompose market movements in actual practice.

Note: many people haven't even fully understood fractals. Fractals don't require any assumptions — they only need to conform to the definition. Whether they conform has only one unique answer, requiring no assumptions whatsoever.

With "all trends are complete," all theories about market movements can be encompassed within it. So this ID's theory can include all other theories and point out their shortcomings, precisely because this ID's theory solves the most fundamental theoretical problem: unique decomposition.

Of course, if you have a good background in modern mathematics, you'll understand this more deeply. But if you don't understand, it doesn't matter either. This ID has already hidden the grand framework in the background and provided the accessible, universally applicable trading methods. Just master those methods and you'll be fine.