Why do 80% of retail traders lose money in stock trading? Because they don't even understand what "massive volume high open of 7% in call auction" indicates.

(Source: A-shares Collection)

Why do 80% of retail investors lose money in stocks?

If you buy stocks of two companies, Company 1 and Company 2, investing 10,000 yuan in each, after six months, Company 1’s stock rises to 12,000 yuan, while Company 2’s stock falls to 8,000 yuan.

At this point, would you sell the stock of Company 1, which has gained, or the stock of Company 2, which has lost?

In fact, a decline in a company’s stock usually indicates poor performance. Continuing to hold it means risking further decline, which is more likely than a rebound. Conversely, a company whose stock keeps rising often has competitive advantages in its industry, making further gains more probable than for those whose stocks are falling.

However, most retail investors think: I’ve already made a profit on Company 1’s stock, so I should take the profit and sell. Many sell Company 1’s stock, but when they see Company 2’s stock losing money, they hesitate to sell, fearing they will realize a loss. So they hold on, believing that as long as they don’t sell, they won’t lose money.

In reality, the stock market is a free buying and selling market. Stock prices are not inherently fair or unfair. When a stock’s price drops, the most likely reason is that many investors have overestimated its value, overestimating the company’s profitability and financial health.

Retail investors tend to sell good stocks and hold onto poor ones, which is why they keep losing money. This has nothing to do with intelligence; it’s a mindset issue—what we call retail investor thinking patterns.

Advice for retail investors:

1. Learn to hold cash. Many amateur traders are skilled at short-term trading, chasing gains and cutting losses, sometimes earning high returns. But for non-professional investors, it’s hard to monitor the market daily or track hot stocks constantly. Therefore, in stock trading, you should not only buy stocks in an uptrend but also learn to hold cash when the market is difficult to operate in, when hot spots are hard to grasp, and when most stocks are falling sharply, with small gains on the rising stocks and large drops on the falling stocks. This approach is suitable for non-professional investors.

2. A sharp decline can be a major opportunity. Market crashes can be divided into broad market crashes and individual stock crashes. Downward trends are less frequent than sharp drops, which are often caused by major negative news or unexpected events. Be cautious about declines at relatively high market levels, but pay attention to sharp drops during major downtrends or after prolonged declines, as many good stocks are often “brought out” by falling prices.

3. Control risk through strategy. The most effective risk control strategies are profit-taking and stop-loss. When investors notice significant technical breakdowns, top formations, or that their profits are shrinking or losses are emerging, they should take protective measures. Timely profit-taking preserves gains; timely stop-loss prevents further losses.

4. Manage position size. Heavier positions can yield higher returns but also carry greater risks. When the market turns downward, heavy positions can lead to serious losses. Investors should adjust their holdings based on market conditions—hold more when the trend is positive, reduce when unstable, and hold a small amount for flexibility.

Auction Market Opening

The auction market opening involves consolidating multiple orders or all orders within a period into a single transaction price, based on the principles of not exceeding the bid price and not falling below the ask price, with a price range of 2%-4%. This often indicates a significant positive signal for individual stocks or a major favorable event related to a theme, or the next day’s opening after a strong limit-up.

Definition of Large Volume

A large volume during auction opening is judged by the ratio of circulating market cap to the auction volume. Generally, for stocks with a circulating market cap of around 100 million yuan, a volume of over 500 lots (50,000 shares) is considered large. For example:

1. Circulating market cap between 400 million and 1 billion yuan with over 6,000 lots traded;

Stocks with a circulating market cap over 7 billion yuan are considered “elephants” and usually do not participate in auction-based trading.

Note: This standard is a basic reference.

1. Opening gap of 2%-4% with large volume, indicating a big rise of 8.91% today.

Taking Tianfeng Securities (rights protection) as an example, the current market sentiment is good, with the main index rising steadily. Individual stocks like XinGuoDu and GaoSheng Holdings show strong momentum, with some stocks opening more than 7% higher, reflecting strong market strength. Supported by favorable policies like the “Ultra HD Video Industry Development Action Plan” issued by the Ministry of Industry and Information Technology, these stocks hit the daily limit by 14:00.

The willingness to test the limit-up during auction can sometimes be a sign of short-term manipulation or testing of selling pressure and retail follow-through. If the test shows light selling pressure, chasing the stock can be advantageous. Stocks can open slightly higher at the start or at the previous day’s closing price.

2. Volume should increase gradually, avoiding sudden jumps; more red bars and fewer green bars are preferable. If the stock drops after opening without quick rebound above the opening price, it indicates a weak pattern.

3. During the entire auction period, the matching price should gradually increase, ideally with concentrated trading in the last one or two minutes. It’s better if the stock hits a limit-up or limit-down before 9:20.

4. To participate in auction opening, place orders around 9:24. Delaying may increase chasing costs; placing orders too early risks buying at the day’s lowest price. When placing orders around 9:24, consider bidding a few cents higher to ensure execution at the opening price. When buying during auction, set a higher bid; for selling, set a lower bid to guarantee transaction.

(3) Sharp decline during auction—“Rapid Drop”

1. Before 9:20, the stock opens high and maintains the limit-up price until after 9:20, with no order cancellations. Buy orders remain steady, but sell orders gradually increase, eventually surpassing buy orders, causing the price to slowly decline. A drop of 5-6% or even a rapid 1-2% decline in the last minutes is possible, provided the stock opened red.

2. For this pattern, initial buy orders should be large and non-cancelled. The starting bid should be at the limit-up price and maintained after 9:20.

3. This is driven by stock behavior rather than news. If the sector moves strongly, failure is more likely. Stocks with no prior volume surge are preferable.

Examples:

Short-term resistance to good stocks:

1. “Guiding the Way” strategy:

Operation:

(1) When a stock shows a long upper shadow at the bottom or during an uptrend, buy on dips near the upper shadow, hold for gains.

(2) When a stock just leaves a top or is in mid-downtrend with a long lower shadow, sell near the lower shadow, keep cash for future dips.

Practical case

2. Short-term sniper technique: “Three Positive Lines”

Meaning: When a stock shows three small positive candles in a row, followed by a large volume surge and a big positive candle, it often indicates continued upward momentum, offering a good profit opportunity.

Key points:

(1) The three small positive candles have similar volume.

(2) The stock moves along the 5-day moving average.

Practical case

3. Short-term sniper: “Blooming on the Board”

Meaning: A stock that hits multiple limit-downs, with the last one opening with high volume and not being closed, suggests strong buying interest and a potential rebound, making it a good entry point.

Key points:

(1) Previous limit-downs are low-volume declines.

(2) The last limit-down opens with high volume and remains open at the close.

(3) Major negative news excluded.

Practical case

4. Short-term buy: “Dragon’s Tail”

Theory: The riskiest thing for traders is to assume stocks that are soaring won’t go higher, but they can continue to rise, especially strong stocks.

Target: Stocks in leading sectors with significant gains, often with strong accumulation at the bottom, using rapid, aggressive tactics.

Entry point: During the “tail” phase, after a rally, when the main force shifts, facilitating high-position turnover and profit-taking. Enter when the stock dips near the short-term cost line after a quick decline.

Caution: This tactic requires speed, precision, and aggressiveness. Do not allocate too much capital—50-80 million yuan per position is recommended. Trader skill and confidence are crucial. Act fast, take profits early, and avoid stubborn holding.

Practical case

Qualities of successful traders:

Successful traders possess unique qualities: correct thinking, disciplined attitude, strong confidence, decisiveness, and resilience in the face of failure. Even in tough markets, they follow their system strictly because they understand: success requires vision, overcoming human shortsightedness, and patience to stick to a profitable model.

The root causes of greed and fear lie in chaotic trading philosophies and poor risk management.

Throughout life, two emotions dominate and influence our fate—greed and fear. Investing reflects life itself, magnified. Investors face these temptations and drives, amplified by the money-centric nature of markets. This causes our thoughts and emotions to lose clarity amid greed and fear. In trading, we shouldn’t expect to capture all market moves; instead, follow the main force and operate in one direction.

Markets never stop. Even if we miss a good opportunity, patience and control over greed will eventually lead to the next profitable trade. But most people cannot control their greed, chasing after gains after missing ideal entry points, or succumbing to fear and closing positions prematurely, missing out on big profits.

Almost all losing traders are confused about trading principles, unable to accept losses as part of the process, which prevents them from experiencing the thrill of large gains. Losses are just costs necessary for ultimate victory, like breathing. Many investors, after several consecutive losses, become fearful of future uncertainties and abandon good trading systems.

A successful trader must develop the right mindset towards losses. Only by understanding their role in the overall system can they trade without pressure. Unless you accept losses philosophically, you will never be a consistently profitable trader. Pursuing overall gains requires accepting temporary losses.