How to Trade in Waves and the Advantages of Wave Trading

Wave trading is a common trading strategy, also known as timing the market. It involves buying at low prices and selling at high prices. Wave trading is not the most profitable method, but it is a relatively effective one. So, how does one trade in waves?

How to Trade in Waves

1. Stock Selection Techniques. Generally, retail investors will not open positions under the dual influence of negative fundamentals and technical factors in the early stages. Stocks that cool off at the bottom are often sold at any cost, while stocks with relatively balanced volume indicate the entry of major funds scrambling for shares. These stocks tend to rebound ahead of the broader market later on.

2. Stock Purchasing Techniques. Retail investors should choose excellent company stocks with prices close to 1-2 times the price-to-book ratio when the market is falling and near the trough of the bottom. At the same time, analyze the volume of funds in the securities market, as changes in trading volume are the most authentic data. Therefore, stocks with increased volume at the bottom are a precursor to an upward movement.

3. Holding Techniques. The holding period should be based on the actual trend. From a market trend perspective, if conditions for a reversal are not met and the index is operating within a wave, take advantage of the characteristic of rising stock prices to sell and then wait for a re-entry point to buy. This strategy works well in volatile markets.

4. Selling Techniques. When the stock price reaches its "peak," which usually refers to the maximum increase achievable in the current wave.

Technically, peaks generally appear at the following positions: the upper Bollinger Band, the upper resistance line of the trend channel, or the blue/red upper bands of the reverse channel. Combine this with indicators like MACD red bars shrinking and turning green, KDJ forming a death cross at high levels, etc., to set profit-taking points.

Advantages of Wave Trading

1. Wave trading is flexible and diverse. Whether in a bear market, bull market, or sideways market, there are corresponding wave trading methods.

2. Waves exist in the trends of every stock, and different types of stocks have different wave trading approaches.

3. Wave trading focuses only on upward trends, avoiding risks brought by market adjustments and maximizing capital efficiency.