Recently, a friend asked me how to tell whether a stock is being run by the main force, and I told him that it’s actually very simple—once you learn how to read the turnover rate, that’s enough.

To be honest, many people have been trading stocks for years but still don’t understand this concept. In fact, turnover rate is simply the frequency of a stock’s buy-and-sell transactions; it reflects how active the stock is. In simple terms, if a stock trades 20 million shares within a month and the circulating share capital is 100 million, then the turnover rate is 20%. The formula is straightforward: Turnover Rate = Trading Volume ÷ Circulating Shares × 100%.

From my own experience, it’s useless to look only at whether the current price seems cheap or expensive. You need to look at the turnover rate together with the stock price trend to truly understand what’s happening. For example, one stock is priced at 70 yuan with a P/E ratio of 10, while another is priced at 7 yuan but has a negative P/E ratio. Many people think the 7-yuan stock is cheap—actually, the 70-yuan one is the real bargain. It’s just like looking at turnover rate: appearances on the surface often mislead people.

I’ve noticed that different levels of turnover rate correspond to completely different stock conditions. In the 1%-3% range, basically no one pays attention. Institutions don’t look at it, and speculative funds don’t like it—these are usually large-cap stocks or stale theme plays. When it’s 3%-5%, some people start to probe with tentative positions, but it’s still not active enough. When it reaches 5%-7%, it starts to get interesting, indicating that both bulls and bears have disagreements, and the price is slowly rising—there’s a good chance the main force is quietly accumulating shares.

In the 7%-10% range, the main force’s buying orders begin to get more proactive. If the price falls, it could be the main force suppressing the stock or shaking out shareholders, but the moves are relatively mild. When it’s 10%-15%, it becomes even more obvious: the main force wants to control the market, and the intensity of accumulation increases—after accumulating, they lift the price. When it’s 15%-20%, trading activity clearly rises. If that happens with a breakout and rising volume from a low level, it may be a sign before the launch; but if it’s a drop with expanding volume at high levels, you should be on alert.

At the 20%-30% level, the battle between bulls and bears is already extremely intense. If it’s at a low level, the main force may be violently accumulating shares, trying to attract retail investors to follow along. If it’s at a high level, then it’s distributing. I’ve found that today’s main force players have gotten smarter: they split large orders into smaller ones and sell gradually. This does two things—first, it reduces friction costs, and second, it’s because they’re afraid retail investors will follow and smash the market. At 30%-40%, turnover rate is very high. Generally, only popular stocks with “sexy” themes reach this level. At this point, it’s possible the main force is swapping out its chips for the bag-holders.

I’m especially cautious when the turnover rate is 40%-50%. Attention is too high at this point, price fluctuations are violent, and most people can’t really HOLD. The risk is substantial. When it’s 50%-60%, it’s like those charts I’ve seen before: it’s often caused by a huge disagreement triggered by some piece of news. The selling at high levels is usually done by those who made money earlier, while the buying is by those trying to catch the pullback and become new bag-holders. When it reaches 60%-70%, it’s already an extremely crazy state—both sides are yelling at each other. When it’s 70%-80%, it’s completely out of the normal track: price uncertainty is extremely high. If it’s falling, I absolutely won’t catch a falling knife, because there may be negative news you don’t know about. For levels of 80%-100%, I advise everyone to just observe from a distance rather than get involved—waiting until things calm down a bit before entering is not too late.

So how do you look at turnover rate to find the main force? My experience is that stocks run by the main force on a medium-to-long-term basis often have low turnover rates, yet the stock price keeps rising. This kind of market pattern shows strong persistence and very small risk. Conversely, if a stock is moving within a downward channel with extremely low turnover, it suggests that nobody is buying or selling anymore—especially for stocks where the main force built positions earlier. Once such a situation appears after a shakeout, you need to keep a close eye, because the stock’s already likely in the bottom-area region.

Another important thing to observe is that you can’t simply say that the higher the turnover rate, the higher the stock price will rise. That statement is correct while the stock price is still in the ramp-up phase. But once the stock price has risen quite high—far away from the main force’s cost-basis line—a high turnover rate can instead become a distribution signal. The phrase we often say, “a record volume brings record-high prices,” refers exactly to this situation. During a price increase, you must maintain a steady, uniform high turnover rate. Once the turnover rate starts to decrease, it means there’s less capital supporting the high price, and the upward momentum will weaken.

In real trading, I’ve summarized several rules. First, turnover rates below 3% are quite common and usually indicate that no large capital is operating. Between 3%-7%, it means the stock has entered a relatively active state and is worth paying attention to. A daily turnover rate of 7%-10% often appears in strong stocks that are frequently noticed by the market. If the daily turnover rate is 10%-15% and it’s not in a historical high-price area or during a topping period, it implies that a strong institutional player is actively running the stock. If it stays above 15% and continues around the day’s dense trading zone, it may mean the stock has enormous upside energy—this is a technical characteristic of a super-strong institutional operation.

I’ve also noticed that you should pay attention to stocks where the turnover rate stays consistently ample, with price rising and volume increasing. This indicates that the institutional player has already deeply gotten involved. As the stock price rises, it will keep facing sell pressure from profit-taking and from position-unwinding orders. The more active and thorough the turnover is, the more thoroughly the sell-pressure orders are “washed out,” holders’ average cost keeps getting raised, and the sell pressure encountered during the upward move is greatly reduced.

In the end, learning how to read turnover rate is learning how to read the market’s language. Low-level price breakouts with rising volume are worth watching. A high-level sell-off with expanding volume is something I personally would not get involved in, and I definitely won’t catch a falling knife when the stock keeps dropping continuously. When I like a stock, I’ll enter from the right side after it stabilizes. When it’s time to be timid, I’ll be timid. Not going against the trend—this is my respect for the market.