Exclusive online edition! Love in the Glacier | Enlightenment Chapter - The Way (Part 2)

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【Cognition 9: My foolish opinions on swing trades vs. long-term trading】

For swing traders who are transitioning into growth-line value investors, I think there are only two scenarios.

1: They’re too successful.

When their capital base grows, unless it’s a big bull market, the market’s capital capacity has already been absorbed—and can’t accommodate more. The bigger the capital, the more swing trading has to consider liquidity. So many swing traders, after their capital base grows large enough, will transition into value investing.

And here’s something pretty funny: many people who became famous for super-short-term trading (maybe going from tens of thousands to a few million), use their own fame to raise private placements. In one raise, they pull in several hundred million. Can several hundred million dollars do swing trading? It can—but players with a few million can’t manage it. Most of them directly transition into value investors, doing everything they can to support the path of value investing.

And for these swing traders, who were not born from the “right program” (this point is very important), only very few manage to succeed again in the value-investing circle. Most of them are like: in bear markets, they live off management fees; when the bull market comes, they live by luck—then they come out to brag. (Of course, there are still many swing traders’ private placements; after the curtain of money, they continue to do swing trading and remain very successful. If I were to invest in a private placement, I’d only want to invest in that kind.)

2: They’re too unsuccessful.

This is easy to understand. If swing trading fails too much—always losing money—then they feel disappointed about life and think their own level isn’t good. Then they ask around everywhere for Big Vs and geniuses, saying: “My swing trading is losing too badly. Can you share a long-term stock? I don’t even need to make a huge profit—just earn some money for groceries is fine.”**

Sorry, a lot of the time, when you start thinking like this, it’s already the beginning of new losses.**

I once had a period where I was losing so badly that it was unbearable. Then I started researching industrial-chain stocks, and bought 4 “zhuang” stocks. I thought, “Go ahead and wash the market—you’ll have a day to run up.” Very quickly, 3 of the 4 zhuang stocks went bankrupt. And the one that didn’t go bankrupt was still steadily down. After 3 months, all 4 stocks were down—cleanly from around minus 50-something% to the low 40%s. Basically a double-bottom haircut—nearly halved.

You might say, “What kind of long-term is this?” Long-term is naturally buying Gree, Moutai, and Midea, right? I don’t know what you all came into the stock market for. What I came into the stock market for is: get rich (as I said that word, I showed a shy smile).

Even if Moutai goes to 2000 yuan, with an all-in purchase right now, that’s only a doubling—and it might take years.

What I came into the stock market for is not a doubling, but getting rich (again, a timid smile).

The belief that keeps me reviewing every day isn’t doubling—it’s ten thousand times (showing a smile only when dreaming).

I couldn’t take the losses anymore, so I switched to value investing. Honestly, I think I’d have been better off deleting my account.

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【Cognition 10: Position management—four-and-a-half equal-slice averaging】

In my view, trading can be summarized in six words.

Selecting stocks, buying and selling.

The first four words can be exchanged in order.

For example: if you’ve found a great stock, look for a chance to buy, find a suitable point to sell, and then end it.

For example: if you find the market is at a sentiment low point where it’s suitable to buy, select a stock in order to buy—buy, then sell, and end it.

Each one is important. If you find a great stock, buying at any time is right—buying on dips, chasing strength, doing limit-up boards—any of it can make money.

If you have solid foundational technical skills, you can buy any stock at a relatively low level, sell it at a relatively high level, and you can make money on any stock.

Later, I’ll break those six words apart and write a series of long posts. Today, I’ll start with “buying.”

Big headline: “Buying”
Sub-headline: “Position management”

Uh… actually, position management is, in fact, an extremely big topic.

Today I’ll mainly write one position management method at the time of buying—‘buying with equal slices by rotating positions.’

Today I’ll talk about the simplest slicing: a rolling split into 4.5 positions.

Split the position into 4 parts,

Day 1: Select stocks
Day 2: During the day: buy two (this is half a position). At night: review and choose the next batch of targets
Day 3: During the day: buy the new 2 targets (this is a full position). During the day, sell the two targets you bought the previous day at a suitable time (so you’re back to half a position at the close). At night, continue reviewing and selecting targets.

And so on, repeating back and forth. Each day you have a flexible portion—so you don’t need to buy tickets and sell tickets every time, which leads to missing sell points. You don’t have to keep worrying every day whether at night there will be a bad headline or a good headline. Just wait.

The biggest benefit of ‘equal-slice by rotation’ is that your mindset stays stable. You don’t have to纠结 every day: it went up—dang, I bought too little; it went down—dang, I bought too much. Things like that.

That’s all for today. This method is pretty suitable for beginners to practice with.

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【Cognition 11: Casual chat about lurking/holding before a catalyst】

Let’s start with “cashing out at specific time nodes.”

In general, for big events that people lurk/hold for—if they have clear event nodes—then usually, the market’s moment of explosion is something you can’t fully control. There are generally two cash-out points.

A sector高潮 (a sector frenzy), which is for cashing out. (1)

You understand that one pretty easily, right? It’s when the sector shows a wave of limit-ups. If the stock you lurked in is a leader, you can still hold a bit longer. But if it’s just a follower, don’t even think about it—sell and be done.

The other is when the time node arrives—you definitely need to sell. (2)

For example, for a theme that’s already started being traded, before the node arrives, it’s definitely everyone competing to run early. Generally, you should be out about a week in advance.

The core of lurking/holding is cognition spreading.

For lurking, the market is always trading a difference in cognition—i.e., cognition spreading.

You think the stock you lurked in has strong expectations. Your cognition is in place, and you believe this cognition will spread, gaining more and more people’s recognition,

Don’t think you’re really gambling on earning results being published. Remember: you’re gambling on cognition spreading.

The early buyers (A), the closer you get to the earnings announcement, the more people are thinking about it; the more people there are, the more people will come to lurk (B),

Sell it to them. Be an outstanding A.

The biggest enemies of lurking are insufficient cognition and market risk.

You think the theme you lurked in is unbelievably great, but in other people’s eyes it’s just trash—your cognition isn’t enough.

You lurked in a theme that really is great, but the stock you lurked in is too garbage—its price moves like trash too. That’s also because your cognition wasn’t enough.

The theme stock you lurk in has no problems. But then suddenly you hit market trouble—when the broad market “kicks the bucket” and the stock falls with it. Because for lurking, your entry usually happens before cognition has spread. You might know how good this stock is, but others don’t—so you can only watch your stock fall with the market. Sometimes it even gets a brutal sell-off. And you feel utterly powerless.

That’s also why I haven’t done much lurking in the past year or so.

Back in 16–17, lurking was very easy. Because the whole market was like that.

When you lurk/hold a stock, even if it doesn’t go up, it won’t drop.

Once the wind comes, you harvest…

At that time there were also bonus share issues. Choose a good target to lurk in—then it really was lying down to win and make money. It was just too easy.

But then in 2018…

It’s a naked demonstration of what “the bear lasts long, the bull is short” means.

Most stocks are in an endless downtrend,

And a lot of the time, when you’re lurking, before the wind even comes, you’re dragged down by this news or that market—locked into a brutal sell-off. How can you even keep lurking?

Let me give an example. In 2016, during the trading frenzy around Sichuan Shuangma’s equity transfer. Back then, the most popular lurking tactic was to check equity auctions across various judicial websites, then lurk—wait until the equity auction is done, and the equity transfer changes hands. Just sit and wait for takeoff…

Recently, Jinding Xincai helped people chase equity transfers. A friend pulled out a “3-years-ago” trick: he checked and found that “King Kong Glass” would be auctioned next Tuesday, lurked for a week. Yesterday the market was bad—almost it got pressed into a limit-down. His paper gains disappeared instantly. After losing the fees, he left the market.

Another reason lurking is hard is that the market is still stuck in a zero-sum stock structure, constantly trading within a fixed amount of capital.

It’s all old weeds. Cognition spreading often reaches completion within a day…

Of course it also has to do with how fast information spreads on the internet right now.

Once it spreads, it’s often just one upper shadow candle—then it’s basically done for…

After so many years trading stocks, there are countless kinds of lurking.

The earliest kind was trading based on rumors/news—this is the typical representative of lurking.

“Friend, let me tell you. There’s oil news about that stock. (add an eye signal here) You know what I mean, right?” “Got it got it.”

I still remember in 2015 when I traded on rumors/news. I heard that a local stock in our area was going to sign a contract worth 10 billion with Africa—back then everyone was trading the Belt and Road.

Bought at 13, averaged in at 20, then sold after the financial product matured—keep adding.

Back then it was amazing. At its happiest, there was a market crash.

During the crash, you could only keep asking: “When will that 10 billion order be announced?”

After asking too many times, you couldn’t even bring yourself to ask anymore, and you could only silently end it…

In the end, when the price broke below your cost line, you had no choice but to cut losses.

And that’s how I missed the entire bull market…

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【Cognition 12: The math of add and subtract】

Actually, learning martial arts is first learning addition, then doing subtraction.

Learn everything first—make additions; then subtract what you’re not good at. Finally specialize in the most stable profit model you’re best at to achieve getting rich.

So when it comes to the current market, it’s actually very simple:

It’s definitely not the time for swing traders.

If you’re still in the “doing addition” phase, then you should always keep part of your capital to participate in places with good profit momentum,

If you’re in the “doing subtraction” phase, then it’s fine not to participate. After all, once you wait, the stocks that fit your model will come back.

Once you understand this logic, you’ll clearly know whether you should participate or not.

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【Cognition 13: Two stages of stock trading】

You can see that when the overall market isn’t falling, the market’s people are roughly split half and half in terms of profit and loss ~~

Showing a normal distribution~~~

If there are people up there, there are people down there.

Someone succeeds, someone fails.

Probability.

Actually, I think it might be more accurate to use another word to describe it:

That is—pyramid-shaped. The elimination rate for swing trading is extremely high.

Take the TaoGuba live trading competition as an example.

At the beginning of the year, there was a 1000-person competition. As long as you didn’t upload your real trading records for 12 days, you’re out.

Right now, only 230 people are still persisting in updating every day.

The rest of them,

First place had already done 20x this year,
Second place 10x.
Third place 6x.

You can see this is a typical pyramid.

The two words I talked about today—they’re actually the two stages of stock trading.

First, you work hard to become one of the people in the upper half of the normal distribution.

Once you’ve completed that step, and every month you steadily remain in the upper half,

then slowly,

you’ll become one of the people at the top of the pyramid ~~

You don’t get fat from eating in one bite.

What people call “attaining the Dao” isn’t like today you take drugs for enlightenment, and tomorrow you start going limit-up one-character boards every day.

Only after a few years, when you look at the valley point in your own curve,

then you tell other people,

“I started to understand the Dao back then.”

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【Cognition 14: Wall Street mottos】

Mr. Chen Jiangting of New York—his article: Wall Street family teachings.

1. Stop loss, stop loss, stop loss!

This is the highest behavioral principle for trading stocks.

2. Diversify risk

Doing this line requires a gambler’s spirit, but you can’t be a gambler. If you play with excitement in this line—handing out big bets with your own hands, always full position or heavily weighted, dreaming of getting rich quickly—then you’ll flip and say goodbye sooner or later, and the speed will be much faster than you imagine. If you get lucky ten times, the tenth luck may not fall on your head. Remember: you can only take calculated risks—don’t put all your eggs in one basket.

The beginner’s mistake is being too eager to make money. They want to gamble with everything in their hands, hoping to become a billionaire tomorrow. The old Chinese saying “wealth doesn’t enter in a hurry” can really be said to be pearl after pearl in this line.

3. Avoid buying too many stocks

Buying a huge pile of different category stocks, hoping to buy a little bit of each stock that has listings—is a typical mistake for beginners, because it disperses your attention. Concentrate your attention on the three to five stocks with the most potential. As your experience increases, gradually increase the number of watched stocks to ten to fifteen. Under no circumstances should you exceed your limit.

4. When you have doubts, exit!

This is a rule that’s very easy to understand but very hard to do. A lot of the time, you’ve basically lost the feel for how the stock is moving. You don’t know whether it’s trying to crawl up or falling down—you also can’t tell whether it’s in an uptrend or a downtrend. At this time, your best choice is to exit!

5. Forget your entry price

To be frank, without at least three to five years of skill—after paying thick tuition—you won’t be able to forget your entry price. But you must understand why you need to do this. The stock you hold today, based on your experience, should rise tomorrow. **If your experience tells you the stock’s movement isn’t right and it may fall tomorrow, then what are you holding it for? What does that have to do with what price you entered at? The difficulty of forgetting the entry price is related to human nature—people like to earn small conveniences and refuse to suffer small losses. If this stock’s price is already higher than your entry price, letting go is easy, because you’ve made a bargain. If it’s lower, then you have to face the choice of “taking a loss.” Ordinary people will look for a hundred “reasons” to be lazy for a while longer. Friend, that “being lazy for a bit longer” has a price. People are hard to change their nature—so try forgetting your entry price! Then you can focus on doing the right things at the right time.

6. Don’t trade too frequently

No need to look at this point. We do swing trading, and what we need is frequent trading.

For value investing, under no circumstances should you trade frequently.

7. Don’t average down. Don’t add to a losing position

When you’ve made a mistake, it’s not about admitting it obediently and starting over. If you hold onto a sense of luck, averaging down as the price falls—hoping for a small rebound so you can recover your losses, even make money—this is the way ordinary people think and do things. In this line, it’s the shortcut to bankruptcy.

Only when a stock is in an uptrend is any point a good entry. If you happen to enter and the stock then starts to decline normally, you can consider adding when the decline ends and it turns back— even if your second entry price is lower than your first entry price, it doesn’t matter. The thinking basis for doing this isn’t to “get out of the bind,” but that you “know” the stock’s uptrend is still continuing. Only traders who have refined their skills to a level where it’s “no method” can consider doing this—if you don’t have three to five years of experience, don’t talk about it. Beginners, please remember: don’t average down!

8. Don’t let profits turn into losses

The meaning of this rule is this: you buy 1000 shares at 10 yuan per share. Now the stock has risen to 12 yuan. On paper, you already have 2000 yuan in profit. At this time, set a stop-loss price. The price should be above 10 yuan—for example 10.5 or 11. Don’t let the stock fall back to 9 yuan before you stop out. If you’ve traded before, you’ll understand how frustrating it feels when a stock rises from 10 to 12, yet you let it fall back to 9, and in the end you cut losses at the stop. You’ll feel how stupid you are! Any time you feel stupid, you must have done something wrong. Set the stop-loss point at 11 yuan, sell, and then calculate— you’ll still make money. That feeling is definitely different from having to cut losses at 9 yuan. This also involves the top priority in stock trading: preserving capital. Under any circumstances, try to protect your principal.

Some readers will ask: the stock price is 12 yuan. If I set the stop-loss point at 11.9 yuan, won’t that ensure I make even more money and be happier counting cash? That sounds right, but actually you can’t do it this way. Sometimes the stock fluctuates by just a dime and it doesn’t even take two minutes. Once you’ve exited, the stock might surge all the way to 15—you’ll lose the chance to make big money. If you set the stop-loss point at 10.5 or 11, you give the stock about 10% breathing room. For a normal rising stock, it won’t easily drop by 10%.

9. Follow the stock market, not your friends!

A simple explanation for this rule is: don’t buy or sell with friends—buy and sell according to market conditions. In the trading hall, I often hear: “What stock did you enter today? I want to follow you into a bit.” Every time I hear it, I find it funny, because it reminds me of a blind person leading the way, followed by a line of two blind people, three of them in a line. The first blind person doesn’t care—anyway, everyone can’t see. But the three sighted pedestrians often line up and walk in a line, each walking their own way while chatting easily. When they hit stones or a ditch, everyone knows how to avoid them. When they walked in that line together, the route they chose was definitely the most smooth.

A person who truly understands stock trading usually doesn’t want others to follow them buying, because you can follow me to buy—but when I need to sell, you won’t know. And that could harm you. If you also have to remember to notify you when selling the stock, how heavy would that psychological burden be. What if you’re losing money?

Friend, put in some effort and study the规律 of stock movement. Learn to select your buy points and sell points. If you want to buy and sell with friends, it’s not a problem—but weigh what kind of material they are. Usually, the ones who like to follow you are the ones who are blind themselves—and blind people like to lead the way.

10. When it’s time to sell a stock, act decisively—never hesitate!

In my stock-trading diary on November 2, 1994, I wrote something like this: xirc (stock trading symbol), shares 2,000, entry price 17.25, rose to 23.50. I didn’t sell when it fell to 21.50. Now it’s down to 16.25. Stupid, so stupid!!! Pain, pain!!! This is a record from four years ago. I can’t remember the exact situation back then anymore, but from the lines above, I know I originally set the sell point at 21.50. When the stock dropped from 23.50 down to 21.50, I hesitated for some weird reason and didn’t take action immediately. On November 2, when the stock fell to 16.25, I originally guaranteed a $8,000 profit—but now I’m losing $2,000 instead. I cried out: stupid, so stupid.

Stock price movement is always full of tricks. When it’s falling, it will keep giving you small rebounds, giving you a sliver of hope and making you feel that the downtrend has started to turn. When it falls again, your hope is destroyed. When you’re preparing to cut losses and give up, it comes with another small rebound—once again tying you down. Starting with small losses, after a few of those back-and-forths, it turns into a big loss. This is why even friends who have already learned “stop loss” can still lose huge money.

The concept of stop loss shouldn’t only be reflected in your principal. Buy 1000 shares at 10 yuan, spending 10,000 yuan as principal. When it rises to 15, you have 15,000 yuan in hand. Don’t just treat the 5,000 yuan as paper profit. If you don’t believe it, sell the stock, deposit the money in the bank, and see whether the extra 5,000 yuan is real money or fake money. Once your exit price is set, when the stock drops to that point, don’t fantasize, don’t expect, don’t talk reasons—sell immediately, that’s it.

11. Don’t treat “the stock price is very low” as a reason to buy, and don’t treat “the stock price is very high” as a reason to sell!

Today I still have a stock in hand. Its trading symbol is ihni; the company operates nursing homes. Five years ago, it fell from 15 dollars to 5 dollars. I thought the stock price was low, so I put in 5,000 dollars and bought 1000 shares. Now the quoted price is 0.25 dollars. My $5,000 is now only $250. I never set a stop loss on this stock. Back then, it was “refusing” to do it. Today it reminds me: “You never know how low a stock can fall!” Because people are very forgetful.

I found that beginners particularly like to buy low-priced stocks. When they ask me whether a certain stock can be bought, the stocks they choose are mostly low-priced. By “low price,” they mean the stock fell from a high price—for example, from 40 dollars to 20 dollars. This kind of thinking might come from daily life. If clothes go from 40 dollars down to 20 dollars, then it’s definitely a bargain. If you extend that habit to stocks, you naturally look for “discount stocks.” Unfortunately, if you use the method of picking clothes to pick stocks in this line, you’re dead. When a stock falls from 40 dollars to 20 dollars, there are usually internal reasons why it will likely keep falling. How can you determine it won’t continue dropping? There’s an English saying: don’t try to catch a falling knife—it will stab your hand until it’s bleeding. Traders, the most important thing is to follow the trend. If a stock drops from 40 dollars to 20 dollars, it’s clearly a downtrend—you can’t go against it. Of course, if it drops from 40 to 10, and then rises from 10 to 20, then that’s a different story.

When a beginner finds that the stock they bought has risen, they feel excited but also anxious, fearing the market will take back the profit it lent them so hard. What keeps swirling in their head is: “Has it already reached the top?” “Or maybe don’t be greedy—sell quickly.” What I want to remind readers here is: don’t treat “the stock price is too high” as a reason to sell. You never know how high the stock can rise. As long as the stock’s uptrend is normal, don’t leave it. Remember the Wall Street motto mentioned earlier: cut losses short, let profits run!

12. Set a plan and follow the predetermined strategy

When you enter, recognize what your risks and returns are. If the market doesn’t run according to your planned track, how will you respond? It’s best to write down your response strategy. Especially for beginners, after just a few days in the market, you can’t even remember what you were thinking when you entered. If your stop loss is 10%—you buy at 10 yuan, it rises to 15—then your stop-loss point is set at 13.50. There’s nothing to argue about. When the stock drops to 13.50, you say goodbye. If your original plan was to buy at 10 yuan and sell at 15 yuan for profit, then when the stock rises to 15 yuan, you must sell decisively with no hesitation. Even though I emphasize that it’s best not to predefine profit targets in this line, if you do have such a plan, follow it. In reality, stock trading methods don’t really have much “right” or “wrong.” The key is that you need to find a method that fits your risk tolerance—and then carry it out firmly. As experience grows, you’ll keep changing your method. It’s like a spiral: you seem to be back at the same place after one full turn, but actually you’ve moved up a level. Methods can be modified, and must be modified as experience accumulates. The important thing is that at any moment, you must have a method and use it to guide your actions.

One of the easiest mistakes for beginners is lacking a plan. They think this stock has dropped very low, or someone says this stock is good—so they buy it. After buying, they have no idea how to track it. Under what circumstances do you stop loss? Under what circumstances do you take profit? Ask them and they’ll answer nothing. If you are one of them, quickly learn to set your own plan. The tuition for stock-school is expensive. The market never makes mistakes. Your own thoughts are often wrong by how many times you guess—how many times you’ve been wrong. You slap your forehead and say, “Damn it—no matter how you analyze it, there’s no reason this stock would fall. It will rebound soon.” My friends come to ask about stocks. They list their analyses one by one, and in the end they decide this one will go to the top, and that one will fall to the bottom. I can’t prove whether their conclusions are right or wrong. Usually I just suggest: if you want to buy it, then buy it. But if the stock drops another 10%, exit immediately. If you want to sell, then sell it—at least you won’t be able to sleep if you don’t sell.

Many famous Wall Street experts have fallen on their faces in this rule. Once someone becomes “named” and has a reputation, their fame outweighs everything. They think stocks should rise—what if they don’t? The conclusion is naturally that the market is wrong, and the market hasn’t experienced the value of that stock yet. As a result, expert after expert falls from their throne. There are so many such stories. The smarter someone is, the more likely they are to be arrogant. In life, their decisions are usually correct. Sometimes something starts to go wrong, but ultimately they prove they were right. But in the stock market, maybe they are ultimately correct—but before the market proves it, they might have already gone home with their heads shaved. Don’t be arrogant. Don’t have vanity. Decide your action plan according to the information the market gives you. If anything is off, admit it immediately—that’s the way stock markets endure for the long term.

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【Cognition 15: Rotating through cycles】

A living example of cycle rotation. Don’t overthink the choice of road.

As long as you believe your road is correct, then keep going,

Swing-trading themes for speculation,
Long-term value investing,
Long and short paired in double plays.

There are countless roads, and each one leads to Rome. What you must avoid is changing course. Most especially avoid this: taking a swing-trading theme at a high level to “catch the bag” and refuse to cut, treating it like a long-term investment—and still calling it value investing. That’s the most terrifying thing.

If the road is right, you’re not afraid of distance
If you’ve confirmed it’s worth it, you don’t care about the changing of the eras

After a big drop, when more and more stocks start trying to break through the previous highs, you need to understand this: stocks go up because of capital pushing. That means the capital in the market is starting to experiment with pushing to higher levels.

Have you ever thought where this capital comes from?

I’ve talked about it before: when the broader market sells off in a systemic way, it breaks the capital structure within the market.

Whatever the trend stocks,
whatever the former hot leads,
whatever this and that—

As long as the broad market keeps selling off continuously in a way that gives people despair, then the swing-trading capital participating in those stocks will all be forced out.

Ask yourselves, weeds of the market:

Is the money in your hands not going to burn?

Then you turn your head—where’s the new hotspot, where’s the new high target? People rush in all at once,

And then the profit-making effect gets triggered again.

That’s also why after every big drop, there will be accompanying “monster stocks” that emerge.

There are still many great things on the homepage—follow me and I’ll help you keep improving!