Many people have been trading stocks for years but still don't understand what the turnover rate is. In fact, this is one of the most easily overlooked indicators. Today, I will clarify the experience I've summarized over the years, especially how to interpret what the main forces are doing based on the turnover rate.

Let's start with the basics: the turnover rate is the frequency of stock trading, reflecting how active a stock is. The simple calculation is trading volume divided by the circulating shares, multiplied by 100%. For example, if a stock trades 10 million shares in a month and the circulating shares are 20 million, the turnover rate is 50%.

I’ve found that most retail investors have no idea how to interpret the turnover rate and just buy and sell randomly, which of course leads to losses. Actually, the level of the turnover rate can reveal a lot, such as the stock’s activity level, the actions of the main forces, and even future trends.

The turnover rate indicates different states in different ranges. Stocks with a turnover rate of 1%-3% are basically not played by anyone; institutions ignore them, and retail funds are not interested. These are usually large-cap stocks or topics that are too old. A turnover rate of 3%-5% suggests that some are starting to test the waters for building positions, but it’s not very active yet. 5%-7% indicates disagreement between bulls and bears, and the main force might be quietly accumulating. 7%-10% shows that the main force is more actively buying; if the stock is falling, it’s likely a shakeout. 10%-15% means the main force wants to control the stock, increasing their accumulation efforts, and after accumulating, they will push the price up.

Once the turnover rate reaches 15%-20%, it gets interesting. Trading becomes more active, and volatility increases. If the stock price is still low, it could be a sign of upcoming movement, but if it’s dropping sharply on high volume at a high level, caution is needed. 20%-30% indicates fierce bulls and bears battles; if at a low level, the main force might be aggressively accumulating, but at a high level, it’s time to watch out for distribution. Don’t be scared by large orders; savvy main forces now split big orders into smaller ones to sell gradually, reducing costs and avoiding retail investors from panicking and selling off.

A turnover rate of 30%-40% appears only in hot stocks. Usually, main forces prefer to accumulate quietly because obvious accumulation can easily push the stock price too high. In such cases, it might be distribution. 40%-50% indicates extremely high attention, with significant price swings; most people can’t hold on, and the risk is high. 50%-60% is extremely crazy—buyers and sellers are cursing each other, often due to major disagreements caused by certain news.

Above 60%-70%, I advise you not to touch it. Such a turnover rate has already deviated from normal, and the stock’s uncertainty is very high. Especially during a decline, never buy the dip, as there may be negative news you don’t know about, and the decline tends to be persistent, likely leading to continued large fluctuations.

My personal experience is that volume increases at low levels are worth paying attention to, while volume decreases at high levels mean I never get involved. If I really like a stock, I wait until it stabilizes and then enter from the right side, respecting the trend.

Regarding how to use the turnover rate to identify main forces, a few key points are very important. First, if a stock has a very low turnover rate but the price keeps rising, it indicates that medium- to long-term main forces are operating. Such stocks tend to be more sustainable and less risky. Second, if in a downtrend, the turnover rate is extremely low—especially after a shakeout—it suggests the stock has bottomed out and needs close attention.

Another important point is that you cannot simply say that higher turnover rates always mean higher stock prices. This is true during the rally phase, but when the stock price has risen very high and is far from the main players’ cost basis, it’s the opposite. High turnover rate can signal distribution, which is the “massive volume meeting sky-high prices.” During an uptrend, maintaining a steady, high turnover rate is essential; once the turnover rate decreases, it indicates that the capital support is waning, and the upward momentum will weaken.

In practice, I’ve summarized a few rules. A turnover rate below 3% is very common and indicates no strong capital operation. 3%-7% means the stock is becoming relatively active and warrants attention. 7%-10% daily turnover rate often appears in strong stocks, indicating high activity. 10%-15%, if not in a historical high zone, suggests that powerful institutional players are actively operating. If the daily turnover exceeds 15% and remains near intense trading zones, it could mean huge upward potential—characteristic of super-strong institutional stocks.

Also, pay attention to stocks with consistently high turnover and increasing price and volume. This indicates deep involvement by the main force. Although rising prices face selling pressure from profit-taking and short-covering, the more active and thorough the turnover, the more effectively the selling pressure is cleaned out. The average cost of holders rises, and upward selling pressure is greatly reduced.

Another common scenario is a sharp increase in turnover after a big price jump, followed by a decline or fluctuation with the overall market—often seen in growth stocks. This indicates that a large amount of chips has been locked in, and the main force is operating long-term. There’s also a phenomenon where turnover rate surges but price fluctuations remain small; this is usually pre-arranged turnover, which has research value.

On the first day of a new stock listing, the turnover rate is generally very high, which is normal because holdings are dispersed. However, an extremely high turnover rate on the first day indicates active accumulation. Continuous high turnover over several days with rising prices also occurs, but the outcome can vary: it could be the main force raising the stock to build positions, short-term funds speculating, or old institutional players distributing. It’s necessary to combine other factors for further judgment.

If a stock is about to hit the daily limit-up, stocks with lower turnover rates are usually better than those with higher ones. This is especially important in weak or consolidating markets. Ideally, ordinary stocks should have a turnover below 2%, and ST stocks below 1%. In strong markets, these thresholds can be relaxed slightly, especially for leading stocks, but never exceed 5%.

Finally, I want to emphasize that when analyzing the turnover rate, it must be combined with the stock’s price trend. If a stock’s turnover rate suddenly spikes along with increased volume, it may mean investors are heavily buying, and the price could rise accordingly. But if the price continues to rise for a period and the turnover rate then surges, it could mean profit-taking is happening, and the stock might decline. In emerging markets, turnover rates are generally higher than in mature markets because of faster expansion, more new stocks, and less mature investment concepts, leading to more active trading.

In summary, learning how to interpret the turnover rate helps you better understand what the market and main forces are doing. This is an essential skill for advanced stock trading.