Hexun Investment Advisor Guo Lei: Divergence in Chan Theory Indicates Exhaustion of Momentum, Not Immediate Reversal!

Many friends see divergence during a decline and think it’s a good time to enter the market. But after entering, the trend either diverges again, pulls back without strength, moves sideways and becomes frustrating, or simply consolidates instead of falling. Why does this happen? Because divergence during a decline only indicates that the bearish momentum is weakening, not that the bullish forces are starting to take over.

First, remember one thing: never judge divergence on the current level’s wave segment unless it has become so small that you can’t analyze it any further. Judging divergence on a wave segment is very easy to make mistakes. The opportunity we aim for with Chanlun is an unfinished trend segment. To understand this method clearly, just remember three steps.

Step 1: Find an unfinished trend. Many people don’t understand what an unfinished trend is. Simply put, based on the idea that trends must be complete, a standard trend segment consists of a small A wave, then a central pivot (midpoint) big A, and before the small B wave leaves the segment, the entire segment is called unfinished. What we want is the effect of the small B wave leaving the segment. We don’t bottom-fish randomly or guess bottoms on the left side. We only wait for one level, preferably the 30-minute level, or even the 5-minute level. Once the big A pivot is fully constructed, and only the last small B wave leaving remains, we only trade this part. This is the most stable, least effort, and most efficient opportunity.

Step 2: Wait patiently for the lower level to complete before entering. What does it mean for a lower level to complete? It means that the structure of this segment at the lower level must be fully formed, and the pivot must be complete. You need to see clearly that it has finished before acting. If you jump in before the lower level is complete, that’s guessing the trend. We want to wait for this lower level to go from unfinished to finished, following its growth pattern to confirm, not predict.

Step 3: Use the growth of each lower level to confirm the completion of the opposite trend at that level. For example, if you’re trading a 30-minute pivot, and its departure segment is at the 5-minute level, then if the 5-minute trend isn’t complete, you must track and confirm with the 1-minute level. This is what I mean by using the growth of lower levels to confirm the completion of that level. After completing these three steps, you can confidently judge that divergence has taken effect, and a reversal signal has appeared. You can enter the market: buy at the lower boundary of the pivot, or exit when it reaches the upper boundary.

Actually, by now you might understand that to use Chanlun well, you need to look at three levels. These levels have clear roles: the current level is used for trading, to determine buy and sell points; the larger level is used to set the direction and follow the overall trend; the lower levels are used to confirm growth, and when the current level is complete, it tells you when to exit. Remember, Chanlun is not based on feelings or predictions; it relies on levels, structure, and trend growth, following the rules—buy at the right points, sell at the right points.