I’ve found that many investors simply don’t understand the turnover rate, resulting in significant losses in the market. Actually, the turnover rate is the frequency of stock trading, reflecting how active a stock is. To put it simply, stocks with high turnover rates are the focus of attention because they are volatile and actively traded, which leads to higher trading volume.

Let’s start with a basic concept: the calculation formula for the turnover rate is very simple—trading volume divided by the circulating shares, multiplied by 100%. For example, if a stock trades 10 million shares in a month, and the circulating shares are 20 million, then the turnover rate is 50%. It may sound complicated, but it’s basically measuring how active the stock is.

I’ve summarized a method to analyze the turnover rate. A turnover rate below 3% generally indicates no large capital is involved, and such stocks usually don’t attract attention. When the turnover rate is between 3% and 7%, the stock starts to become active and warrants attention. If the daily turnover rate reaches 7% to 10%, that already indicates a strong stock with high market interest.

The key is to understand what the turnover rate means at different positions. A high turnover rate at the bottom often signals new funds entering, especially when the turnover is sufficient, and the subsequent upward space could be large. But if the stock price has already risen significantly, and the turnover rate suddenly surges, caution is needed—this could be the main players distributing shares. I often say, “Sky-high volume, sky-high price,” which is the principle behind this.

The turnover rate can help us identify the actions of the main players. Some stocks have very low turnover rates but keep rising, indicating long-term institutional operation, which makes these stocks more sustainable and less risky. Conversely, if a stock is in a downtrend and the turnover rate is extremely low with no trading activity, it’s a sign to watch closely because it often means the stock has bottomed out.

In practical trading, I’ve found that if the daily turnover rate exceeds 15%, and the stock can stay near a dense trading zone, it might indicate huge upward potential ahead. This is a technical feature of super-strong institutional stocks. But at the same time, be cautious—if the turnover rate surges but the stock price doesn’t fluctuate much, it often means a large amount of chips are changing hands in a specific area, which can be a pre-arranged, research-worthy pattern.

Another very important point: continuous high turnover rates over several days accompanied by significant stock price increases that outperform the market can have multiple interpretations. It could be the big players building positions, short-term funds speculating, or even long-term institutional players distributing shares. Therefore, it’s essential to combine other factors for judgment.

For newly listed stocks, a high turnover rate on the first day is normal because the shares are initially dispersed among many investors. The higher the first-day turnover, the better—it indicates active accumulation. But what happens afterward depends on subsequent performance.

Overall, the turnover rate is a key indicator for understanding stock activity, but it should never be used alone. It’s crucial to combine it with price trends to make more accurate judgments. Volume at the bottom and volume decline at the top are different signals. My principle is: volume increase at low levels is worth paying attention to, while volume increase at high levels with falling prices is something I would never chase. When I like a stock, I wait for it to stabilize before entering from the right side. This approach shows respect for the trend.