Recently, I have been studying the concept of taking the initiative in the stock market, and today I happened to achieve a small success, so I would like to share it with everyone.

The reason for studying the initiative in the stock market is that I often find that losing the initiative in trading can affect the overall returns.

How to understand this sentence?

In fact, it refers to the high cost of holding positions, which can affect the mentality of holding positions and easily lead to wrong judgments.

For example, if a stock rises from 5 yuan to 10 yuan, there will be many twists and turns in between.

But for those who bought at 5 yuan, because they have profit protection, when the stock price fluctuates between 7-8 yuan, they have a stable mentality, hold their positions calmly, and are not easily shaken out.

Advertisement

Even if the stock price eventually fluctuates and falls after the fluctuation, it is just a reduction in profits.

But for those who got on board at 7-8 yuan, there is no profit protection. If the stock price fluctuates at this position, the mentality will become very restless.

If you are lucky enough to catch the main wave to 10 yuan, you can still make a profit.

If you are unlucky, and the stock is shaken and cleaned here, or if it breaks through, you have to cut your losses and leave.The term "first mover" in the stock market refers to the initial positioning at the beginning of an uptrend, ensuring relatively low costs, and possessing the confidence and patience to hold positions.

Some people may associate the first mover with "bottom fishing."

While they may seem similar, there is actually a difference.

I have previously shared about the three types of buying points in the stock market: the first buy, the second buy, and the third buy.

The so-called first mover is more inclined towards the second buying point, which is the entry point after the second retest.

If you think carefully, you will understand why a large amount of capital enters when there is a second retest.

In fact, it is a portion of the capital that is trying to be the first mover, entering at this position.

Of course, they will also set a stop-loss position to prevent further breakdown.

If you want to buy at a low point, you must take risks, but if you wait for the market to emerge and there is a confirmation signal, it is at least 20% higher than the low point, and the cost will be very high.

Therefore, if you set a stop-loss of around 5% and choose to enter at the second low point, this second buying technique is the standard first mover.Being the first mover ≠ making money; being the first mover is merely a probability of profit and loss ratio. In simple terms, it is maximizing returns under controllable risk conditions.

If you don't set a stop loss, don't rush to be the first mover, as you may easily be wiped out.

Rushing to be the first mover is not suitable for ordinary investors, especially those who cannot control their positions and mindset well.

There are many rules and some deceptive patterns associated with rushing to be the first mover. If you do not understand or accept this method, do not blindly participate.

Regarding rushing to be the first mover, let's talk about a few key points of the model based on historical data backtesting.

1. The probability of the second low being established is less than 60%.

The model ran over 4,900 stocks, with more than 27,000 instances of a second bottoming out.

It shows that the success rate of the second purchase is a little over 59%.

The so-called success rate refers to the probability of not setting a new low within 3 months after buying.The article translates to:

That is, 40% of the stocks, after purchase, reached new lows within less than three months, or even within a week, or broke through the stop-loss position.

The set stop-loss position is also quite wide, with a 6% stop-loss.

This indicates that this preemptive trading method still carries certain risks and is not particularly safe.

However, if the preemptive purchase is made at a relatively low point, the profit from a round of increase is still considerable.

So, the risk-reward ratio is acceptable, and a probability close to 60% is not low.

2. The first low point appears with an increase in volume, and the second low point is more effective.

I looked through all the stocks that have risen sharply afterwards, and there is a characteristic of the first and second purchase, which is to increase the volume.

That is, the phased bottom has a clear increase in volume.

Low point volume, the second low point retests, the effectiveness will be higher.

If the low point does not increase the volume, but the second low point increases the volume, it is very likely that it will continue to go down.The article translates to English as follows:

Firstly, there needs to be a round of game-playing at the bottom, where a portion of the bottom chips are swept away by the main force.

The secondary low point is just the main force's second entry, which has carried out a deep wash of the market.

Volume is a key indicator to determine the effectiveness of the low point. Without capital entering the market, everything is illusory.

3. The first low point appears with a moving average reversal, and the secondary low point has a higher degree of confirmation.

After the first low point, when it comes to the second retest, there is a key point, which is the direction of the moving average.

Usually, the rebound from the first low point will cross the medium and long-term moving averages, and then move downwards.

Because there are repeated bottoming, many long-term moving averages will start to flatten under the influence of the time cycle, and the medium and short-term moving averages will even move upwards.

Moving averages can represent resistance levels, but more often, they represent cycles and space.

Once the moving average begins to show a reversal trend, it means that the cycle may change.

The essence of buying at a low point is to buy at the beginning of a large cycle. Once you understand this point, everything becomes clear.Pay attention to the trend of moving averages, looking for stocks that show a tendency for the moving averages to turn back, rather than stocks that are still falling all the way down.

4. The secondary low point should be accompanied by an increase in volume, but the volume should not be higher than the low point.

It is very important that the second retest should have an increase in volume, but the volume should not exceed that of the previous low point.

The reason is also very simple: if the volume is higher than the previous low point, it indicates that the market still has significant divergence at the secondary low point.

If this happens, it can only indicate that the previous low point may not be the absolute low point, and after the funds have made a round of operations at the bottom, there are signs of retreat.

At this time, it is necessary to be more cautious because the bottom chips are not yet stable.

Moderate volume increase is needed for collecting chips. The more moderate the volume, the higher the concentration of chips, and the greater the probability of confirming the bottom.

Seizing the initiative refers to following the main force to build positions at the low point in the first time.

Some people will ask, do you need to control the position? In fact, the position is related to the stop loss ratio and the risk-bearing capacity.In a bearish market, it is necessary to diversify your portfolio when buying stocks, rather than going all-in on a single stock. After all, it is a probability issue of more than 60%, and there is no 100% answer to explain it.

Moreover, most of the low points and secondary low points will resonate to some extent with the index. If you have a certain judgment ability for the index, it can significantly increase the accuracy of grasping the low points.

The model used for data backtesting to determine the low points is quite different from actually seizing the initiative in real combat. The data merely proves the possibility of making money with this trading method, but it does not mean that ordinary people can make money with this kind of trading.

This is because there is another key point behind the data, which is stock selection. Technical patterns are meaningless if they are not combined with fundamental stock selection.

The second re-entry points for blue-chip stocks are mostly correct, while those for junk stocks are mostly incorrect. Therefore, stocks themselves are very complex, and some trading methods that work well for others may not necessarily work for everyone.It can be referenced, but one must fully understand it; a superficial understanding is quite dangerous.