Recently, I’ve been reorganizing the contents of Chan Lun again. The more I ponder, the more I feel this theory truly reveals the essence of the market. Honestly, it’s about thoroughly exposing traders’ greed and fear psychology, then using a rigorous set of rules to counteract these human weaknesses.

What exactly is the use of Chan Lun? Simply put: by understanding human greed, anger, and ignorance, it constructs a coding system capable of interpreting market trends. Every fluctuation in the market isn’t random; it can be broken down into specific buy and sell points. Just like a butcher skillfully dissects an ox, you need to know where to cut at the joints to enter and exit precisely.

I think the core of Chan Lun is actually a few combined laws. When the trend develops to a certain stage, these laws make the completion of a trend extremely clear and narrow. In other words, if you truly master these rules, judging the trend becomes a skill, not just relying on intuition and luck.

It’s especially important to emphasize the concept of “trend’s perfect completion.” In theory, all free-market trends can be precisely located. The rise will eventually end, and the decline will inevitably complete. This means that every end of a downward trend is the best buying opportunity—what Chan Lun calls the first buy point. The key is knowing how to judge when the previous trend truly ends.

Regarding operational aspects, Chan Lun emphasizes that rhythm is the most important. And rhythm comes from a clear understanding of levels. Without the concept of levels, any buy or sell point is just guesswork. My understanding is that levels are like a classification system for the market—major levels determine the overall direction, while minor levels handle local fluctuations. If the daily chart is upward, then the 5-minute fluctuations are just oscillations to shake out stops; at this point, the main focus should be holding positions, using smaller levels’ buy and sell points to lower costs.

Central points, trend types, and levels—these three are the core of the Chan Lun operation system. The central point is the area where at least three consecutive sub-level trends overlap. If a completed trend only contains one central point, it’s a consolidation; if it contains two or more same-direction central points, that’s a trend. This distinction is crucial because the logic for trading in consolidations and trends is completely different.

Divergence is the only basis for judging trend reversals. High-level divergence to sell, low-level divergence to buy—no predictions. I’ve seen many people simply judge divergence based on MACD green and red bars, only to find they keep getting divergence signals that turn out to be false. In reality, divergence has many prerequisites: first, confirm whether it’s a trend or consolidation; second, look at the yellow and white lines, not just the red and green bars; finally, observe the area formed by moving averages crossing.

The concept of “pattern” is, frankly, the formation of a specific pattern composed of three consecutive K-lines. The middle K-line of a bottom pattern has the lowest high and low, and vice versa for a top pattern. But after a pattern forms, the most critical question is: will it generate a new stroke? If there’s no shared K-line between the pattern and the next pattern, then a new stroke is generated; otherwise, it’s an intermediate pattern, and the trend will continue in the original direction.

I personally think that many people tend to go astray when learning Chan Lun because they overlook the importance of levels. Levels determine your operational space and capital capacity. With 10k yuan, you might freely enter and exit on a 1-minute level, but with 1 million, you must wait for the daily bottom pattern to form and the trend to clarify before entering. This isn’t a theoretical issue; it’s a strict practical constraint.

In terms of operation, I prefer to combine multiple levels. For example, when trading on the 5-minute chart, I also look at the 30-minute and daily charts as frameworks. Changes in the 30-minute red and green bars and the yellow-white lines help me judge the overall direction of the 5-minute and 1-minute trends. If I can’t understand the 1-minute chart, I can directly look at the 30-minute indicators to make decisions.

Finally, I want to say that the power of Chan Lun lies in building trading on a rigorous logical foundation, not on greed and fear speculation. As long as you truly understand this system, you can gradually resolve psychological weaknesses and act more rationally in the market. That’s the real value of Chan Lun.