Recently, I’ve been chatting with some beginners and found that many people trade stocks blindly, buying and selling without paying attention to the turnover rate. Honestly, if you don’t even understand the turnover rate, don’t blame yourself for always chasing highs and selling lows.

First, let’s talk about what the turnover rate is. Simply put, it’s the activity level of stock trading, reflecting how many people are entering and exiting. A high turnover rate means this stock is very hot, everyone is trading; a low turnover rate indicates no one cares, it’s dead cold. The calculation isn’t complicated either, just the trading volume over a certain period divided by the circulating shares, multiplied by 100% to get the turnover rate.

My own experience is that whether a stock has potential, the turnover rate is the most direct signal. Think about it, institutional and main force investors won’t come quietly; they’ll definitely quietly accumulate at low prices, and during this time, the turnover rate will gradually rise. If you see a stock with a continuous low-level fluctuation in the turnover rate between 5% and 10% for several days, it basically indicates that funds are secretly positioning, and such stocks are often worth paying attention to.

But here’s a trap to avoid. A high turnover rate isn’t always a good thing; the position is very important. When high turnover appears at the bottom, it’s a signal of new funds coming in, and the upward potential is greater. But if the stock price has already risen significantly, and suddenly the turnover rate surges, nine times out of ten it’s the main force dumping, and you should run quickly. I’ve seen too many people chasing at high levels and ending up trapped badly.

When it comes to stock selection, I usually don’t just look at the turnover rate; I also combine several indicators. First, look at the price-to-earnings ratio, compare it horizontally within the same industry, and see if your stock is relatively cheap. Then check the net profit ranking—whether a company is profitable is very clear. The number of shareholders is also important; a decreasing number of shareholders indicates concentrated chips, which is a good sign. I also look at net asset value per share and dividend-paying ability. By scoring comprehensively, I can judge whether the stock is truly cheap or not.

A turnover rate below 3% generally means no main force operation; it’s too cold. Between 3% and 7% indicates that some attention is starting to be paid. Between 7% and 10% is a more active state. From 10% to 15% means the main force is seriously accumulating. If it exceeds 15%, and the stock is still at a low level, that’s volume at the bottom, and the potential for future rise is large. But if this high turnover appears at a high level, be cautious.

My trading principle is to only buy when volume increases at low levels; I don’t look at volume spikes at high levels. When I like a stock, I wait for it to stabilize before entering from the right side, which greatly reduces risk. Sometimes, pretending to be smart is better—don’t always try to go against the trend. Respect the market’s movement, and if you need to be cautious, just be cautious.

Also, it’s normal for newly listed stocks to have very high turnover on the first day because the chips are dispersed. But subsequent performance depends on whether there’s a main force supporting it. Several days of high turnover accompanied by a big price increase could mean the main force is raising the stock for a big position, or it could be speculative capital playing around. You need to look at other technical indicators to judge.

Finally, I want to say that the turnover rate is just a tool, not a magic pill. It can help you identify the actions of the main force, but it doesn’t guarantee you will make money. True winners are those who understand both fundamentals and technicals, and can control risks. Ask yourself more “why” questions, and pay attention to what those trading against you are thinking. That will make your thinking much clearer.