He Xun Investment Advisor Guo Lei: How to Use the Three Types of Buy and Sell Points in Chan Theory?

In the previous content, we broke down the four evolution logic of the central pivot—new pivot formation, extension, expansion, and broadening. Understanding these helps clarify that all high-value trading opportunities fundamentally stem from the energy transformation and directional choices of the pivot. When the pivot is practically applied and turns into actionable buy signals, it relies on the three most critical types of buy points in Chan Theory: 1) Bottom-fishing buy, 2) Steady buy, and 3) Trend-catching buy.

Downward reversals are high-cost-performance positions in practical trading, especially the second type of buy point. The first and second buy points complement each other, forming a complete judgment system for downward reversals. The first buy point appears at the end of a decline, specifically when the price breaks the last downward pivot and shows divergence signals. This divergence point is the first buy point, a left-side bottom-fishing signal, offering high returns but with relatively higher risk, suitable for traders with some Chan Theory foundation who can identify divergence. Beginners can ignore this. The second buy point occurs immediately after the first, confirming the downward reversal on the right side, offering greater stability and suitability for most traders. Specifically, after the price rebounds from the first buy point, it will undergo a secondary retracement. As long as the low of this retracement does not fall below the first buy point, this low is the second buy point, which is a safer entry point in practice.

The position of the second buy point directly determines the strength of subsequent trends and can be categorized into three types of formations. The strongest is when the second buy point is above the previous downward pivot, indicating a strong reversal of the downtrend, with bullish forces dominating, likely initiating a new upward trend, making it the most efficient entry pattern in practice. The neutral pattern is when the second buy point is within the previous downward pivot range, indicating a more complex trend with ongoing battle between bulls and bears, with unclear future direction, requiring further observation of pivot evolution and cautious entry to avoid chasing highs blindly. The weakest pattern is when the second buy point is below the previous downward pivot, usually a weak rebound during a decline, prone to evolve into a pivot expansion structure, with higher subsequent downside risk and low participation value; in practice, it should be decisively avoided.

Downward reversals are completed by the first and second buy points, while upward continuation is driven by the third buy point. The third buy point is one of the most stable and easily grasped buy points for ordinary traders, requiring no complex judgment—just comparison to standards. When a secondary trend moves upward away from the original pivot and then retraces with a secondary trend, as long as the low of this retracement never falls back into the upper boundary of the original pivot range, this low is the third buy point. Its value lies in confirming the pivot, directly proving that the previous upward breakout was not a false move but supported by genuine capital momentum, and the existing upward trend will continue. From Chan Theory, after the third buy point appears, there will inevitably be at least one upward secondary trend, which is the most classic and safest opportunity for trend continuation, suitable for most traders.

In summary, the practical logic of Chan Theory is quite simple: centered around the pivot, it classifies market movements through four types of pivot evolution, then captures three types of buy points derived from pivot evolution—corresponding to trend reversals in declines and trend continuations in rises. However, it must be emphasized that any buy point in Chan Theory only guarantees a change in trend direction—either reversal or continuation—and does not guarantee the magnitude or speed of the rise. Therefore, tracking the trend after entry and risk management are more important than the entry itself. After entering, traders should immediately switch to smaller timeframes for observation. If the price rebounds quickly, they can hold; if not, and the price falls back into consolidation, forming a new small pivot, it indicates a possible reversal. Once clear sell signals appear on the small timeframe, exit decisively—never fight the trend—to avoid pullback risks. Buy at the right points, sell at the right points, accurately identify and strictly select buy points before entry, and strictly control risks and dynamically track after entry. This is the complete cycle of practical Chan Theory. Its core is never about predicting market movements but understanding the current balance of bullish and bearish forces, enabling appropriate responses at key nodes—this is what differentiates professional traders from ordinary retail investors.