Establishing the trading system: from disorder to order, from randomness to inevitability!

The longer you stay in this market, the more you realize a simple truth: In the end, stock trading isn’t about being right once, but about having a system that allows you to stay disciplined in any market condition. [Taogu Ba]

1. Methodology is the foundation

Many people oversimplify trading, thinking that just looking at candlesticks and listening to news is enough. But what truly sustains stability are those seemingly dull but essential methodologies:

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1. Review requires a methodology—**

Most people’s reviews:

Flip through the top gainers, scroll through holdings, read a few influencers’ opinions, tell yourself “I worked hard today” in ten minutes. No framework, no conclusions, and the next day you’re still clueless—this is just a diary, not a review.

Pain points:

Don’t know what to look at, only see rise and fall without understanding logic

Cannot see the pattern, only remember results without analyzing causes

No contingency plan, trading based on feelings after review

Time is spent, cognition doesn’t improve, and losses still happen as expected

A review with methodology:

Rearrange the market based on a systematic framework—use cycles to identify stages, decode funds through volume and price, measure sentiment with emotional temperature, anchor directions with key nodes. Piece together scattered fragments into a complete battle map.

Value:

Understand the logic behind rises and falls

Predict multiple possible paths for tomorrow

Formulate clear response plans

Without review, you don’t know what the market is saying; after review, you know what to do

2. Auction needs a methodology——During the first few minutes of opening, information density is high. Without a framework, it’s impossible to understand;

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Focus points during auction**

1. Look at the overall: Is the index opening high or low? Are more stocks rising or falling? How’s the premium on yesterday’s limit-ups?—Set the tone for the day.

2. Look at direction: Which sectors are leading with straight-line moves? Which stocks are aggressively bidding? Which underperform expectations?—Identify the main attack direction.

3. Look at individual stocks: Weak turning strong (high open volume on weak stocks) to watch; strong turning weak (abnormal low open) to exit.

4. Look at sentiment: How many “nuclear buttons” are there? Did the limit-down stocks open up?—When nuclear buttons disappear, it often signals a sentiment reversal.

5. Make buy/sell decisions: What to buy, what to sell.

In one sentence: Auction is used to verify expectations, not to predict. Understanding auction dynamics means you know what to do at the open.

3. Watching the market requires a methodology—With thousands of stocks moving, what signals to watch, how to interpret them, and what to be alert for;

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Core points for market watching**

1. Look at index and volume: Is the trend up or down? Is volume expanding or contracting?—Determine the environment for the day.

2. Look at sentiment and style: Is sentiment recovering or retreating? Is the 10-cent or 20-cent trend dominant?—Set the trading tone.

3. Look at main themes and rotation: Are core themes strengthening or diverging? Which side is the market favoring?—Decide attack strategy.

4. Look at key stocks: Are the targets exceeding expectations or falling short? When to switch from strong to weak or vice versa—Identify signals during trading.

5. Look at risk signals: Are the number of limit-down stocks increasing or decreasing? Are “nuclear buttons” spreading?—Set defensive bottom line.

In one sentence: Watching the market isn’t about entertainment; it’s about verifying expectations, recognizing changes, and responding dynamically. Once understood, you’ll know what to do next.

4. Expectations require a methodology—What defines “meeting expectations,” “below expectations,” or “above expectations”? What are the standards?

Combine expectations with real-time application: Expectations are the script, the market is the scene.

Review and simulate: Set multiple paths, clarify confirmation signals for each (e.g., weak turning strong, volume breakout, nuclear button disappearance).

Initial judgment during auction: In the first three minutes, verify if the expected direction is supported by funds.

Market dynamics: Keep an eye on key targets and signals; if expectations are met, execute; if below, withdraw; if above, follow and adjust.

Core principle: Don’t obsess over right or wrong direction; focus on whether responses are timely.

In one sentence: Expectations are meant to be validated by the market, not to be blindly followed. During trading, identify signals, execute plans, and adjust dynamically.

5. Cycles require a methodology—Is the market starting, fermenting, peaking, or retreating? Which indicators define these stages?

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Cycle node application**

Nodes are four-stage markers—assess the market: start, ferment, peak, or retreat? Set strategic direction.

Nodes are also for individual stocks—verify their identity: leading stock, follow-up, or rebound? Decide tactical moves.

Three key node types:

Start node: Leading stocks emerge, pay attention.

Top node: Leading stock hits a limit or breaks down, retreat.

Rebound node: Leading stock peaks, rebound for arbitrage.

Core principle: First determine the cycle position, then identify the stock’s role, finally set buy/sell rhythm. Correct nodes, correct rhythm.

6. Volume and price require a methodology—How to interpret the intentions behind volume expansion or contraction;

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Volume and price essence:** Volume indicates divergence, price indicates direction. Volume expansion shows disagreement; contraction shows consensus.

Core rules:

Divergence to consensus: Volume spikes (breakout with high turnover) → next day volume contracts and strengthens (weak turning strong)

Consensus to divergence: Volume accelerates on a strong move (consistent bullishness) → next day volume drops and breaks (strong turning weak)

In one sentence: Volume and price are the language of funds; understanding the shift between divergence and consensus reveals buy and sell points.

7. Sentiment requires a methodology—How to quantify and transmit profit and loss effects.

Short-term sentiment practical application

1. Dialectics of sentiment and index

2. Dialectics of consensus and divergence

3. Dialectics of recovery and retreat

4. Core principle

Sentiment is a thermometer, not a predictor. Don’t use sentiment to forecast direction; use it to assess strength—verify main trend, authenticity of nodes, and whether to act or defend.

In one sentence: Understanding the dialectical unity of sentiment prevents being deceived by single signals.

Every dimension requires understanding. Ignorance is like blind men touching an elephant. Market intuition is boundless; review summaries detached from market reality are useless.

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2. The difference between a trading system and systematic trading**

3. Underlying logic differs

Systematic trading: Seek fixed patterns—buy when certain pattern appears, sell when it disappears. Pursue a “one trick pony.”

Trading system: Build a core understanding of the market—cycles, volume and price, sentiment, nodes—cross-verified. Pursue systematic cognition.

2. Applicability differs

Systematic trading: Only effective in specific market conditions. When style shifts, the pattern fails, leading to confusion.

Trading system: Evolves with the market. When style switches, quickly find new responses based on underlying logic.

3. Relationship with the market differs

Systematic trading: Attempts to make the market fit its pattern, complains when it doesn’t.

Trading system: Actively adapts to market signals, adjusts dynamically, admits mistakes, and re-engages.

4. Core goal differs

Systematic trading: Focus on “whether this time is correct”—single-trade win rate.

Trading system: Focus on “whether it can survive long-term”—build sustainable expectations and risk controls.

5. Final state differs

Systematic trading: Illusion of finding a holy grail, but actually making trading a conditioned reflex.

Trading system: Develops your own trading philosophy, turning trading into a realization of cognition.

In summary: Patterns are crutches others give you; good markets let you walk a few steps, bad markets make you fall. A system is your own legs—regardless of the road, you can walk steadily, far, and at your own pace.

3. Embrace the long-term refinement of your system, like education

Everyone has gone through nine years of compulsory education, then high school, college. Over a decade, do the knowledge learned directly apply to work? Not necessarily. But why learn?

Because without a solid foundation, tall buildings can’t be built.

Building a trading system is the same principle. It requires solid, step-by-step, repeated practice from basics to advanced. Methodologies can be guided by others for faster understanding; without guidance, you must learn through insight—depending on your talent and effort.

But one thing remains true: There are no shortcuts. Trying to skip basics to catch the leading stocks is like wanting to solve calculus without mastering addition and subtraction.

4. The mindset of returning to simplicity: from complexity to purity

Many traders make things more complicated—dozens of indicators, hundreds of strategies—and end up not knowing how to trade.

The true process of building a system is actually a process of subtraction. Remove the chaotic, ineffective, contradictory elements, leaving only the core dimensions, and ensure these dimensions can verify and support each other.

Returning to simplicity isn’t about knowing nothing; it’s about understanding deeply and then simplifying. Every methodology must withstand scrutiny, every dimension must interlock with others—rigor is the lifeline of a system.

5. This is a battlefield, not a playground. One last heartfelt message: the stock market, besides war, is the most brutal battlefield.

You can’t see your opponents, hear gunfire, but every move you make is a battle against smart, fierce funds. They study you, wait for you, and use your fears and greed to harvest.

In such a battlefield, your mindset and attitude must be disciplined, not random, casual, or impulsive.

A system is your only armor and weapon. Without a system, you’re running naked; with one, you’re a true warrior.