[Red Envelope] Market entry, how to understand the market chart?

Many friends don’t have much time in the market yet. If you blindly follow the trend with excitement and end up chasing breakouts or selling in panic, it’s very easy to get “used up” by the market before you even figure out the fundamentals. So, as a beginner, how should you read the basic market moves in order to form the elements of thinking and understanding the market?

Brother Shark thinks we can imagine watching the market as a reconnaissance that moves from far to near. You don’t need to use a microscope right away to study the details. Instead, first use binoculars to see the overall picture, then use a magnifying glass to look at the key areas, and only last use a microscope to analyze the cells.

By following the order of “first watch the broad market, then watch the sectors, and finally watch individual stocks,” you can avoid “seeing only the trees and not the forest.”

Step 1: Use binoculars to look at the broad market environment.

Before deciding to go out, you always need to check the weather and make plans—whether to bring an umbrella, and whether you need sun protection. The broad market is the “weather” of the stock market.

1. What to look at?
Main indexes: the Shanghai Composite Index, the Shenzhen Component Index, and the ChiNext Index. They act as the market’s overall “thermometer.”
Number of advancing/declining stocks: the screen usually shows how many stocks are up and how many are down. If the index is rising but the number of decliners is far greater than the number of advancers, it means only a small number of heavyweight stocks are propping things up, and the market’s real “making money” effect is very poor.
Trading volume: is the broad market’s total turnover expanding or shrinking? Expanding volume means capital is active; shrinking volume suggests a thicker atmosphere of market watchfulness.

2. How to look?
Judge the tone: is the broad market index trading above the moving averages (MAs)? If it is, it suggests the overall market trend is relatively strong and the trading environment is favorable. If not, be cautious.
Identify risk: if, on the intraday (time-sharing) chart, the white line is above the yellow line for part of the session and below it for other parts—indicating a weak overall market that day—then most stocks may fall along with it. At this time, it’s not suitable to act aggressively.

Step 2: Use a magnifying glass to look at hot sector themes

1. What to look at?
Sector gain leaderboard: find which industry or concept sectors are leading today. Is it artificial intelligence, new energy, medicine, or consumption?

2. How to look?
Find the main line: are the sectors that are leading just a fleeting burst, or are they being continuously driven by policy or news developments? Hot themes with logical support are more likely to have staying power. For example, during the recent period when the overall market kept adjusting, innovative drugs kept showing resilience; and earlier, the grid-related business that benefited from policy and industry support also managed to deliver a performance against the trend—these are not random results.
Observe the tier structure: a good hot sector theme should have “leader stocks” hitting the limit up (the most consecutive limit-up days), “core/main-battle stocks” that hold the fort (large market cap and good trend), and a large number of “trend-following stocks” providing momentum. Only a sector structure like this is healthy.

Step 3: Use a microscope to look at core individual stocks

1. Look at the K-line patterns
Trend: is this stock’s daily K-line in an uptrend channel (higher highs keep getting printed), or in a downtrend channel? Prefer stocks in an upward trend.
Position: is the stock price at a historical high, or at a relatively low level after long-term consolidation? High-priced stocks carry higher risk, while low-priced stocks offer a higher margin of safety.
Key patterns: pay attention to some classic bullish patterns, such as:
Bullish alignment: short-term moving averages (like the 5-day and 10-day) are above the long-term moving averages (like the 20-day and 60-day), and all moving averages are dispersing upward.

Breakout patterns: the stock price breaks through a long-term consolidation platform or an important resistance level with volume expansion.
Avoid stocks with a downtrend.

2. Look at the intraday chart and trading volume

Set the tone at the open: focus on the call auction from 9:25 to 9:30.
Gap up + volume expansion: if the stock opens higher and the call auction成交量 is several times the volume of the same period yesterday, it indicates strong demand and accumulation by investors; the probability that the stock will move stronger that day is high.
Gap down + volume contraction: it suggests the market isn’t optimistic, and the weakness may continue.
Strength/weakness during the day: after the open, observe the relationship between the intraday line (the white line) and the average price line (the yellow line).
Strong signal: the white line stays above the yellow line throughout. Every time it pulls back toward the yellow line, it gets support and then rises again. It’s like climbing a mountain: after every rest, you regain the energy to keep going up.
Weak signal: the white line is tightly suppressed by the yellow line. Every time the rebound reaches near the yellow line, it turns down again.

Volume-price coordination (the core of the core):
Healthy rise: when the stock price is lifted, the trading volume bars (red bars) below expand at the same time; when the stock pulls back, the volume bars (green bars) shrink at the same time. This is called “volume expands when rising and contracts when falling,” and it’s a sign of orderly capital entering.
Danger signal (volume-price divergence): the stock makes new highs, but the trading volume is smaller wave after wave. This means there’s insufficient momentum behind the rise—it’s “overstated” and may pull back at any time.

However, the market is constantly changing. Intraday news “pulses,” changes in capital, and frequent fluctuations in the price action are all part of it. So be sure to remember: we watch the market to verify our own judgment—not to let market sentiment lead us by the nose. Start by learning how to understand. Then summarize and think, and only gradually learn how to make decisions. Finally, evaluate the results of those decisions, and adjust!

Wishing all friends who see this post a smooth investment!

Fight through thorns with Brother Shark,
Ride the waves in the Big A!

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【Important statement】: The above is only for sharing ideas and absolutely does not constitute investment advice. The market has risk—invest with caution!