After trading stocks for so many years, I’ve realized that the people who truly make money understand one thing—turnover rate. Many people only look at the K-line chart and trading volume, but they ignore this indicator, which can directly reflect the movements of the main participants.

Simply put, turnover rate is the frequency of stock buying and selling transactions, reflecting how active this stock is. When I first started trading, I was always confused by limit-up rallies at high prices. Only later did I understand that watching the turnover rate is what helps you identify what the main participants are doing.

For example, if the turnover rate is only 1%-3%, it means no one is paying attention to the stock—institutions don’t look at it, and speculators don’t like it. But when the turnover rate rises to 3%-5%, people start to tentatively build positions. If it keeps staying in the 5%-7% range, there’s disagreement between buyers and sellers, and the stock price gradually trends upward. At this point, the main participants are very likely quietly accumulating shares. I pay special attention to this range because it often indicates that a major move is coming.

When the turnover rate reaches 7%-10%, the buying by the main participants becomes more proactive. If the stock price is still falling, that’s a sign they are shaking out weak hands. At this stage, many retail investors get scared and leave, but people who know what they’re doing know it’s an opportunity. I’ve stepped in a few times in this kind of situation, and they all ended up rising by a lot.

The most critical factor is volume at the low end. If a stock at the bottom shows a turnover rate of 15%-20%, and this high turnover can be maintained for several trading days, then it is basically certain that new capital has entered. The more fully the turnover happens, the lighter the selling pressure will be when the stock starts to rise later. This is the most effective method I use to judge the bottom.

On the other hand, you need to be wary of high-turnover volume at high prices. When a stock’s price has risen to a very high level and the turnover rate suddenly surges, in 8 out of 10 cases it means the main participants are distributing shares. They’re smart and won’t smash it all at once with big orders; instead, they split the shares into smaller lots and sell gradually, afraid that retail investors will follow by dumping. So when I see a surge in turnover rate at high levels, I usually reduce my position.

I also notice a pattern: if for several consecutive days the turnover rate stays high, and the stock price jumps sharply and is much stronger than the broader market, then you need to distinguish whether the entity is driving the price up to build positions, or whether speculators are just stirring a quick trade. That requires combining other factors to judge—you can’t decide based on turnover rate alone.

To be honest, when used properly, the turnover rate indicator can help you avoid a lot of detours. But you can’t blindly put your faith in it either—you have to look at it together with the stock’s price location, the broader market environment, and fundamentals. High turnover at low levels is a good sign; high turnover at high levels means you should be careful. My current trading habit is: as long as a stock drops while volume is high at high prices, I firmly won’t catch a falling knife—I wait for it to stabilize before entering on the right-hand side.

Finally, what I want to say is that the stock market is a place where both sides, buyers and sellers, play games against each other. Don’t assume your judgment is always correct—think about how the people who take the opposite trades from you think. Ask “why” a few more times, pay closer attention to how the turnover rate changes, and you’ll become more rational and make far fewer mistakes.