Introduction to Box Theory
Box Theory is to make the stock price from the ups and downs into a share of square. Like boxes. In other words, it is to divide the rising market or the falling market into a number of small markets, and then study the highs and lows of these small markets.
In the rising market, after the stock price breaks through the new high price, because the public are afraid of too high, it is very likely to fall back, and then rise again, forming a box between the new high price and the low point of the fall price;
In the falling market, every time the stock price falls to the new low price, based on the strong rebound mentality, it is very likely to rebound, and then back to the original trend. A box is formed between the high point of the rebound and the new low price, and then according to stock price fluctuations in the box to speculate on stock price movements.
As the basic characteristics of the box theory can be clearly seen, this is an extension of the concept of the resistance line. When the stock price rises to a certain level, it will encounter resistance, and if it falls to a certain level, it will encounter support. Naturally, the stock price rises and falls between certain levels. This float produces a lot of box shapes.
If the stock price tends to be a box-shaped trend, the stock price naturally has a high price and a low price. Whenever the stock price reaches the high price, the selling pressure is heavier and the stock should be sold. When the stock price returns to the low point and the support is strong, it is the buying opportunity. This short-term operation can be maintained until the stock price breaks above the upper or lower limit of the box, and then the operating strategy is changed.
As the stock price trend breaks through the upper limit of the box, indicating that the resistance has been overcome, the stock price continues to rise. Once it falls back, the past resistance level naturally forms a support, causing the stock price to rise and another rising box shape to be established.
Therefore, when the stock price breaks through the resistance line, it naturally forms a buying point. At this time, the profit is greater and the risk is lower. On the contrary, when the stock price trend breaks through the box-shaped lower limit, it indicates that the support has failed, and the stock price continues to fall. Once it rises, the support in the past naturally forms resistance, causing the stock price to fall back and another falling box to form.
When the stock price falls below the support and rebounds, it is the selling point, and it is not suitable for buying. Otherwise, the loss opportunity is large and the risk increases.
The trend of the a day can also be expressed in the box shape. Due to the ups and downs of daily market fluctuations, in just a few hours of trading time, there are often numerous small wave-like undulations. These wave-like undulations are sometimes regular, sometimes no, here let’s image that they are all regular fluctuations. and let me introduce the rising market and falling market trends.
Some short-term speculators record the bidding process of individual stocks for 3 hours every day, and sort them out. They will find two completely different trends.
According to the box theory, the practice is to observe and not take action in the first box. After waiting for the second box, you must judge the market rise, fall, consolidation, prepare to take action, and wait for the trend to break through the second box. It is clear that it is the best time to buy and sell.
To use the box theory, you need to focus on the following points:
- First, we must determine the stock price trend, and then determine the highs and lows of each small box after determining the rising or falling market.
2, from the high and low turning points of each market to find the timing of buying or selling and the appropriate price, the calculation method can be obtained from the upper and lower limits of the previous box, with the rise and fall of the price.
3, in the rising market to do long, do not contradict it and selling-short. Never selling-short in the rising market, this is the basic truth of the trend.
According to the operator's short-term operation experience and the sensitivity of the mind, decide how to use the box theory operation in which time cycle period. It is indisputable that the profit of the day-trading is low and the risk is high, so it is better to use the box theory operation in a longer time cycle period.
As mentioned earlier, for box-shaped changes, it is best to observe one or two box-shaped changes before deciding whether to buy or sell, unless you are a very experienced trader, do not easily start in the first box.
The change of the box shape on the current or short-term is highly susceptible to sudden factors, resulting in irregular changes, and should be vigilant.
7, the use of box theory operation, it is best to take the premise of the general trend, with each segment of the market as the focus of operation, do not easily jump in.
8, hot stocks are very active, long and short battles between the two sides are fierce, the rate of rise and fall is fast, the box theory can not adapt. The scope of the unpopular activities is not suitable. Only the stocks with stable stocks tend to rise when they rise, but also when they fall. They rise or fall in a stepwise manner, so they are most suitable for box theory operation.