The Counterintuitive Aspects in Chan Theory

Chan Theory, the more you study it, the more you’ll find it often contradicts intuition. The more you take it for granted, the less it actually makes sense. Here are a few typical examples.

1. The definition of the central zone has nothing to do with “down-up-down” or “up-down-up”

For the central zone in Chan Theory, many people’s thinking is fixed by the model: an upward central zone is “down-up-down,” a downward central zone is “up-down-up.” This mnemonic itself isn’t wrong, but it’s just one of the most common expressions, not the actual definition.

What is the definition of the central zone? The overlapping area of three consecutive secondary-level movements. That’s all.

What does “three consecutive segments” mean? It means dividing the movement by time, any three consecutive segments, as long as their price ranges have a common overlapping area, this common area is a central zone.

As for whether these three segments are “down-up-down” or “up-down-up,” that depends on how the trend unfolds, not on the existence of the central zone itself.

For example, the highs and lows of the three segments might be quite complex and not as neat as the mnemonic suggests, but as long as they share a common overlapping price range, the central zone exists.

Therefore, the central zone is not defined by “direction,” but by “overlap.” Direction is just an appearance; overlap is the essence. “Down-up-down” and “up-down-up” are just the two most common forms, not the only ones, nor the criteria for judgment.

2. The entry segment and the exit segment of the central zone can have opposite directions

This is another deeply fixed mindset: entry segment (rising) + central zone + exit segment (rising); entry segment (falling) + central zone + exit segment (falling).

But Chan Theory has never said this.

The direction of the entry and exit segments can be completely opposite. For example:

· Rising entry segment + central zone + falling exit segment
· Falling entry segment + central zone + rising exit segment

What is this called? A turning point central zone. It is the end of the previous trend segment and the start of the next. The central zone here is not a “relay station,” but a “transfer station” — where bulls and bears complete their handoff.

A standardized model (rising + central zone + rising) is just one of the most common, but not the only one.

The market is much more complex and flexible than the model. If you treat the model as the standard and other patterns as “abnormal shapes,” you’ll miss many real structures.

3. The smallest analysis point differs, and the results are completely different

This is the most easily overlooked but also the most important point.

If the smallest component is a “stroke” on a 1-minute chart (A0), then the “1-minute line segment” you draw is composed of at least three strokes within one minute.

Three overlapping 1-minute line segments form a 1-minute central zone. Only with a 1-minute central zone can you define the type of 1-minute trend. Recursively, from the 1-minute trend type, you can derive the 5-minute trend.

But if you directly take a “stroke” on a 5-minute chart as the smallest component, then the “5-minute line segment” you draw is composed of at least three strokes on a 5-minute basis.

Three overlapping 5-minute line segments form a 5-minute central zone. With this 5-minute central zone, you can define the 5-minute trend type.

However, the “5-minute trend type” you directly draw on the 5-minute chart and the “5-minute trend type” derived recursively from the 1-minute chart are not the same thing at all.

Which method is correct? Neither. They just differ because of the different minimal analysis points, leading to different results.

Using 1-minute recursion yields more precise results but requires much more effort; directly drawing on the 5-minute chart is rougher but more efficient.

The former suits detailed operations; the latter is better for quick market viewing. The key is to know which one you’re using and not to compare the two results directly.

Many debates are endless because two people use different minimal analysis points, and the line segments they draw are not at the same level of trend, yet they argue over correctness.

It’s like one person measuring with centimeters, another with inches, then arguing over whose data is more accurate — but as long as you know what units you’re using, you can understand each other.

Chan Theory’s counterintuitive aspects are far more than these three points. But understanding these three points thoroughly can at least help you avoid many detours: don’t be fixed by the model, don’t treat direction as the definition, and don’t compare correctness across different analysis bases.