Before Buying#
Market Observation#
Avoiding Market Trends#
- Do not engage in a one-sided market decline.
- Do not engage at the top of a volatile range.
- Do not engage after a clear acceleration.
Aggressive Market Trends#
- After clear panic in a one-sided decline.
- At the bottom of a volatile range.
- Anytime during an upward trend.
Questions to Ask After Observation#
- Is the current market in a strong or weak background?
- Is it a suitable trading environment, or not? Or is it somewhere in between?
- Should the position be more aggressive or conservative?
- Should the buying point be a more aggressive breakout or a conservative continuation point?
- Is the current market background suitable for holding stocks (right-side profit-taking) or for high selling (left-side profit-taking)?
Direction Selection (Weekly Picks)#
Top-Down Approach (Sector Priority)#
Apply the Doctor's Sector RPS (currently using a 20-day cycle, .401 ranking).
Bottom-Up Approach (Stock Priority)#
- Hong Kong capital increase and new highs (Rule One)
- RPS20 first-line red (Rule Two)
- All RPS red (Rule Three)
- Short-term traps (Rule Four)
- Long-term traps (Rule Five)
Selected Targets#
Logical Selection#
- Policies
- Good tracks (large imagination space, economic moat, slow iteration, replicable, disruptive technology)
- Performance explosion (new capacity, new products, price increase expectations, Davis double kill, turning point)
- Capital (northbound, fund holdings, retail investors)
Fundamental Selection#
Keywords: High prosperity; high growth; exceeding expectations; capacity release (new product launch); product price increase; turning point; performance revision; turnaround; Davis double hit; favorable policies; catalysts.
Risk Keywords:
- High Debt: Choose companies with relatively low debt ratios, generally less than 50%, with no high long-term loans or high financial expenses.
- High Pledge: The lower the pledge, the better.
- High Goodwill: The smaller the goodwill, the better; if goodwill is large, assess whether the acquired company's promised profits can be achieved.
- High Receivables: High receivables indicate a poor business, especially dynamically judging the trend of receivables over several quarters; if the trend worsens, it indicates deteriorating operations.
- High Inventory: High inventory is a double-edged sword; careful analysis is needed, as high inventory usually comes with high risks.
- Capital Operation Investigation (Double-Edged Sword): Check for short-term actions such as issuing new shares at a discount, placing shares, issuing bonds, cash acquisitions, and merger loans; some capital operations can change individual stock trends.
- Lock-up Release, Major Shareholder Reduction: Ensure there are no lock-up releases or major shareholder reductions in the short term.
- Historical Violations: Check for any black history or past penalties.
Under equal conditions, try to avoid stocks with the above risk points.
Pattern Selection#
- Upward trend / continuation point
- Compact structure, no abnormal volume-price behavior
- Pocket pivot / VCP
Sector Effects#
- Sector RPS strength
- Patterns of other stocks in the same sector and their RPS strength
- Performance of other stocks in the same sector
Write Down the Plan#
A good memory is not as good as a bad pen; write down the plan conceived the day before.
Buying#
Wait for Key Points / Validate Trends#
- Continuation buying point
- Pocket pivot
- VCP
Risk Management#
Position Management#
First, letting signals guide positions means deciding when to enter and exit based on market-generated buy and sell signals.
Second, letting win rates guide positions is also objective; win rates are the best thermometer to sense market temperature.
Third, in addition to the above-mentioned signal guidance and probability positions, position management must adhere to one principle: the principle of moderate diversification.
Thus, under the principle of moderate diversification, we insist on letting signals and win rates guide positions, achieving basic position control.
Stop-Loss Pre-Settings#
- Percentage stop-loss (currently primarily percentage-based)
- Pattern stop-loss
- Abnormal response (20-day maximum decline)
Take-Profit Pre-Settings#
- Percentage take-profit
- Left side
- Right side
Holding#
Patiently wait for buying points
Patiently hold and wait for selling points
- No triggering of take-profit or stop-loss — hold
- In an upward trend, with no clear acceleration — hold
- Not in a downward trend — hold
- Stock price running near key points — hold
- No abnormal volume-price behavior — hold
- Good supply-demand operation — hold
Selling (Programmatic Execution)#
Use robots to automatically execute plans, avoiding the reluctance to take profits and fear of losses. As for the stability of the robots, use tools from different platforms to execute a set plan.
Stop-Loss Pre-Settings#
- Percentage stop-loss (currently primarily percentage-based)
- Pattern stop-loss
- Abnormal response (20-day maximum decline)
Take-Profit Pre-Settings#
- Percentage take-profit
- Left side
- Right side
- Buying point
- Early stage of the second phase of the stock
- First level: Fixed profit-loss ratio selling (loss 5, profit 15)
- Second level: Take profit if daily increase exceeds 5-7%, then buy back when it adheres to moving averages.
- Third level: Sell to take profit at the 20-day maximum daily decline, stop-loss.
- Later stage of the second phase of the stock
- First level: Fixed profit-loss ratio (loss 3, profit greater than 9, retreat 2 sell)
- Second level: Take profit if daily increase exceeds 5-7%, then buy back when it adheres to moving averages.
- Third level: Sell to take profit at the 20-day maximum daily decline, stop-loss.
After Selling#
Psychological Recovery#
Strictly execute the trading plan, strictly stop-loss! Take profit! Do not fantasize!
After trading, whether winning or losing, adjust your mindset and continue to the next trade!
Trading Analysis#
By analyzing trades, the following two questions will yield clear answers:
- Why did you lose money? Was it due to market environmental factors, an imperfect system, or because you did not achieve unity of knowledge and action?
- Why did you make money? Was it money earned within the system or luck? Is this kind of profit replicable?
These two questions are essentially about finding flaws and advantages; once clarified, and if you can correct flaws and enhance strengths, it will be hard not to grow in the long term. Below, I will explain how to analyze your trades.
If done regularly, this work is actually very simple. We can create a table to dynamically record each of our trades, and then conduct a comprehensive statistical analysis every so often, such as once a month, a quarter, or a year. This way, we can identify periodic issues.
Below is a sample table I use for analysis, including two parts: one is the raw record table, and the other is the statistical table.
References & Acknowledgments#
Jian Fang, Dr. Tao