Recently, I’ve seen many beginners lose money trading stocks. In the final analysis, it’s because they don’t sufficiently understand the market’s basic concepts. Today, I want to talk with everyone about a particularly important indicator—turnover rate. To be honest, if you master this, it can help you identify what the big players are doing.

Let’s start with the most straightforward explanation: turnover rate is the level of trading activity in a stock. You can understand it this way: within a certain period, the higher the trading volume and the more frequent the turnover, the more people are paying attention to the stock and the greater the disagreement among investors. But there’s a common misconception here. Many people think a high turnover rate is always a good thing, but that’s not necessarily true—you need to look at where it appears.

Let’s understand it from the numbers first. Calculating turnover rate is simple: turnover rate = trading volume ÷ circulating share capital × 100%. For example, suppose a stock trades 10 million shares in a month, and its circulating share capital is 20 million. Then its turnover rate is 50%. It looks high, right? But if this happens after the stock price has already risen several times and is at a high level, it could be a signal that the big players are distributing. On the other hand, if the same 50% turnover rate appears at the bottom, it indicates that new funds are entering—meaning is completely different.

In my own experience, increased volume at low levels is what deserves the most attention. When a stock, after a long period of dullness, suddenly shows a high turnover rate at low levels—and that elevated level can be maintained for a few trading days—it often means that capable funds are quietly building positions. In this kind of situation, because it’s bottoming with strong volume and turnover is also sufficient, the potential for subsequent upside is usually relatively larger. Conversely, if the stock price has already risen to a high position and the turnover rate starts to expand, I personally wouldn’t get involved, because it’s very likely the big players are gradually fleeing in batches.

As for how to use turnover rate to spot the big players, what I want to say is: in stocks where genuine medium- to long-term big players are operating, the turnover rate often isn’t extremely exaggerated. Some stocks have very low turnover, but the price just keeps rising steadily—that’s a characteristic of strong stocks. On the contrary, for stocks with turnover rates above 30%, either short-term speculative “hot money” is trading, or the big players are distributing. You need to be especially cautious.

In real trading, I’ve summarized several rules. A turnover rate below 3% is basically meaningless, indicating there isn’t real capital showing interest. Between 3%-7%, the stock starts to enter a relatively active state, and it’s worth keeping an eye on. A daily turnover rate of 7%-10% is something strong stocks often show, meaning the market has started to pay attention. When it reaches 10%-15%, you should be on alert. If it’s not in a historical high-price area, then it may be that the big players are making a major move—but you need to combine it with the trading volume during pullbacks to judge whether it’s worth entering. If it exceeds 15%, and the stock can stay near a dense trading area, that may indicate an extremely strong stock, with the potential to become a dark horse later on.

But there’s one very important point here: don’t mechanically look at the turnover rate’s absolute number. The same 50% turnover rate means completely opposite things when it appears at the bottom versus when it appears at the top. High turnover at the bottom represents accumulation (absorbing shares), while high turnover at the top represents distribution (dumping shares). So my suggestion is: you should always make a comprehensive judgment by combining the stock’s price position, the overall market environment, and the prior price increase.

Also, don’t blindly trust the trading volume by itself. Nowadays, big players have already learned how to use order-splitting tactics—splitting large orders into smaller ones and selling slowly. On the one hand, this reduces impact costs; on the other hand, it also prevents frightening retail investors. So when you look at turnover rate, what you should examine is its continuity and regularity—not a sudden spike on a single day.

Finally, my recommendation is: pay attention to stocks that rise on moderate volume from low levels. I personally wouldn’t touch stocks that fall on heavy volume at high levels. And if I like a stock, I will also enter only after it stabilizes, from the right side—this is respecting the trend. In the stock market, if you need to be cautious, then be cautious; don’t always try to fight the trend.