A brief introduction to a trading method for one-minute intervals, based on the Chan theory.
Core profit philosophy: make big profits while making small losses.
This includes two aspects:
A: The profit space is greater than the stop loss space.
First, achieve this goal without considering the win rate, relying on formations to bottom fish. So how to catch this bottom?
As we know, the concept of formations in Chan theory means that under a downtrend, when a reversal upward occurs, there must be a bottom formation. The appearance of a bottom formation does not necessarily lead to an upward move.
Utilizing this point, as long as one opens a position at the bottom formation, setting a stop loss below the lowest point and closing at the end of an upward move can achieve the goal of making big profits while making small losses.
If relying solely on formations to open positions, then the problem is:
When bottom fishing, consecutive stop losses lead to a particularly low win rate, which causes successful bottom fishing trades to be unable to cover the losses from failed attempts.
To solve this problem,
1: Reduce the space of each stop loss.
To achieve this, one must open positions on smaller timeframes, using small moves to influence larger ones.
If we want to catch the bottom at the five-minute level, expecting a five-minute upward move, we do not open positions at the five-minute bottom formation, but instead switch to the one-minute level to open positions. This way, each time I fail, the stop loss isn’t one or two five-minute candles, but rather one to two one-minute candles. After this improvement, the stop loss for each failed position is significantly reduced.
2: Reduce the position size during each stop loss.
To achieve this, one must open half a position when a bottom formation appears on the one-minute level, and wait for a pullback that does not break the low of the formation before opening another half position. At the same time, the stop loss is moved up to the second low that does not break the low of the one-minute pullback.
After such optimization, there are three situations:
1: After the first half-position opening fails, it’s only a half-position stop loss, not a full-position stop loss.
2: After the second half-position opening fails, although it’s a full-position stop loss, the stop loss space has not changed.
3: After the second half-position opening fails and the price does not break the low of the bottom formation, at this point, buy back with a full position, setting the stop loss at the second low.
After this optimization: when opening a position fails, most of the time it’s a half-position stop loss, and a small portion is a full-position stop loss, but the stop loss space hasn’t changed and may even be smaller.
When a position opens successfully, in most cases, it’s a full position; theoretically, there are also a small number of situations where there’s no opportunity to add positions, but these cases are very rare and almost never occur.
After these two steps of optimization, two goals were achieved:
1: When setting stop losses, the loss space is small, while the profit space is large; the key is when to close the position.
2: Large position when profitable, small position when stopping loss.
Although these two goals have been achieved, the win rate hasn’t improved, and losses still occur. So how can we improve the win rate?
1: Trend-following, how to achieve trend-following?
To achieve trend-following, one must combine large and small cycles; the direction of the 30-minute trades determines the direction of opening positions at the one-minute level. When the direction at the 30-minute level is confirmed to be upward, start opening positions when a bottom formation appears during a one-minute level pullback.
The direction of the 30-minute trades relies on the 30-minute top and bottom formations. When a bottom formation appears at the 30-minute level, there is the potential for a 30-minute upward move. Wait for a bottom formation to appear at the one-minute level before opening a position. Keep waiting until the 30-minute top formation appears.
2: After combining large and small cycles, it’s found that the win rate is still unsatisfactory, still not achieving profitability. But so far, this method has only used formations as a technical structure.
So, to improve the win rate next, we need to utilize Chan's three buying and selling points:
1: Near the buying point of the 30-minute level, only when a bottom formation appears do we expect a 30-minute upward move. At this time, look for one-minute buying points that go against the 30-minute trend's pullback. Keep this strategy until a top formation appears near the 30-minute selling point, at which point change the direction of the operation. During the intermediate phase, when a top formation appears at the 30-minute level, it should not be taken into account; continue to go long in the original direction. Based on experience, when the first and second tops appear at the 30-minute level without reaching the 30-minute selling point, this is actually the best one-minute buying point.
2: Similarly, at the one-minute level, what we need to do is wait for the bottom formation to appear at the buying point of the one-minute level during a pullback.
So when opening positions at the one-minute level, the following situations may occur:
One-minute level consolidation divergence buying.
One-minute level trend divergence buying.
One-minute level segment divergence buying.
One-minute level consolidation does not diverge; secondary buying (may transition from small to large).
One-minute level segments without divergence; secondary buying (may transition from small to large).
One-minute trend without divergence; secondary buying (may transition from small to large).
The one-minute level has not formed a segment structure, but a segment has already formed at the five-minute level, which is the first buying point when the first top forms at the 30-minute level.
Next, let’s talk about taking profit. If this is not done well, it won’t lead to profitability either.
The method of taking profit is to give up the divergence segment at the one-minute level, primarily due to fears of a small transition to a large move, causing a large portion of profits to be given back.
1: After opening a position, if there’s a sharp rise at the one-minute level, regardless of whether there’s a structure or not, take profit directly. Because after a sharp rise, the profit is already substantial, and the risk-reward ratio has been established. There’s no need to take the risk of waiting for a divergence structure.
2: After a one-minute upward move, when profits appear, the stop loss remains unchanged.
3: A segment divergence appears at the one-minute level; move the stop loss to the cost line and handle it.
4: A central divergence appears on the one-minute level, take profit.
5: At the one-minute level, when a central formation appears without divergence, take profit after a sharp rise from this central formation.
The method seems very simple, but the difficulty lies in execution:
Since it’s a method relying on divergence and formations to bottom fish, the initial win rate isn’t high; a stop loss in 6 out of 10 trades is very common (as experience increases, the win rate will gradually improve). A method with a low win rate is difficult to execute. After each loss, when signals appear again, can one still execute without hesitation?
After experiencing several failed attempts to add positions, can one still add positions decisively when signals appear again?
After each upward move with profit, the stop loss gets hit again. After each segment divergence, is it still possible to hold firmly to a segment at the one-minute level?
In execution, if consistency in executing signals is not achieved, with no exceptions of adding positions and holding firmly, the final result of trading cannot be profitable. It will only balance between gains and losses.
The hardest part here is the stop loss. Every time consecutive signals fail, after adding positions, each time there’s a profit, the stop loss hits again, and after each profit, the position gets pushed back. Can one still persist? When a signal appears, can one decisively strike again?
Without a stop loss, there will be no profit; if one is reluctant, they will not gain.
In the past few days, I have been preparing for the upcoming magical trades!!!
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Non-constant brings non-constant brings non-constant!!!
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