[Red Packet] Dry Goods Post 16: On the Suitability of Holding Cash and Trading Strategies

A simple like keeps the gains coming; keep asking questions, and success will be within reach! Hello everyone, I am Longqing of WanGuZhang. [Taoguba]

1. Introduction
After experiencing this week’s market, I believe everyone’s feeling isn’t great. The index has entered a downward channel this week, falling four out of five days, with key technical support levels all broken. In such a market, many trading strategies have become ineffective. Last weekend, I posted a detailed article on quantitative trading systems, which was suitable for last week. However, I’ve found that it’s no longer effective this week.

First, the stocks in the bidding dragon formula were mostly hitting the limit up last week, but this week they turned into stocks that get crushed after hitting the limit. This change was quite unexpected. Regardless of the reason, these stocks no longer have profit potential, so it’s best to temporarily abandon this formula.

Next, the updated trend trading model initially still had some profit potential, but this week it’s been ineffective. I recommended trend trading only when the index was stable and limit-ups were not happening, but with the index falling continuously this week, trend stocks couldn’t move smoothly. In such cases, trend trading should be abandoned until conditions improve, because every strategy has its suitable environment and isn’t applicable all the time.

Reviewing my trades this week, I only bought stocks on Monday and Friday; I was in cash the rest of the time. I realized that previous trading strategies had lost their effectiveness, so I chose to stay out of the market. This helped me avoid many pitfalls. When the market is poor and trading strategies no longer generate profits, it’s better to stop trading rather than keep pushing. No successful trader in the stock market is opening positions every day. Even top traders with advanced strategies only trade a few select setups; they won’t trade in ineffective markets, preventing their capital from erosion.

Based on feedback, I found many traders couldn’t control their impulses this week, heavily leveraging and causing large drawdowns. This makes future trading difficult—losing 50% requires doubling your capital to break even. Controlling drawdowns is paramount; preserving capital is the foundation for future success. This highlights the importance of staying in cash when necessary. When the market is bad, cut losses early; learning to stay in cash leads to better prospects.

2. Suitable Environments for Different Trading Strategies
The stock market is a zero-sum game: every profit is taken from someone else’s loss. Whether a trading strategy is profitable depends on whether enough capital is participating. This can be judged by the number of signals refreshed by my formulas.

For example, the first limit-up and consecutive limit-up formulas, when their combined signals are fewer than five stocks, usually indicate insufficient capital during the bidding phase. Remaining stocks may also fall further. In such cases, it’s better to trade lightly or not at all, because a single stock alone can’t form a stable trend.

The trend main-up formula, with more relaxed conditions, requires at least ten stocks to be refreshed after market close. Fewer than that suggests limited capital in trend trading, making it hard for stocks to move smoothly. In such situations, it’s best to trade lightly or not at all.

The bidding dragon formula has been updated to be more stringent and often fails to refresh signals, so there’s no strict quantity requirement. If there are signals, you can participate; if not, stay in cash. I’ve included the updated formulas for everyone to review. Note that signals refreshed during holidays are abnormal; the screenshots are for verification only and do not reflect normal trading days. The first limit-up, consecutive limit-up, and bidding dragon formulas refresh at 9:25 AM daily, while the trend main-up refreshes after market close.

Additionally, simply looking at formulas isn’t enough. Each formula has a matching trading system that helps filter stocks and refine entry and exit points. These systems are linked in my previous detailed posts at the end of this thread. The first limit-up and consecutive limit-up formulas require bidding guidance to operate; the bidding dragon formula can be used without guidance, but having it is better.

3. How to Use Conditional Orders
Based on recent feedback, many people are unclear about basic concepts like how to use conditional orders. In the era of quantification, most stocks are traded with algorithms, especially during limit-up moves, where algorithms detect signals and quickly buy in to hit the limit. Manual trading like before is no longer practical.

Using conditional orders allows the system to place orders automatically when certain conditions are met—this is a form of quantification, fighting quantification with quantification. I want to mention TongHuaShun software, which many use because it integrates with many brokerage platforms, allowing login to various accounts. However, I personally rarely use it.

A key reason is that TongHuaShun is a third-party platform. When you log into your broker account through it, some broker-specific features are limited. For example, China Galaxy Securities’ app has a cloud conditional order feature, allowing you to set preconditions for automatic trading without monitoring the market constantly. TongHuaShun lacks this feature, and Galaxy’s own app also offers it.

A fast-trigger cloud conditional order is essential in today’s market dominated by algorithms, especially for those who can’t watch the market all the time. Placing a limit-up or stop-loss conditional order can often protect profits or control losses. Here’s a brief guide on setting such orders, focusing on TongHuaShun:

For example, to buy Huadian Liaoning Power’s limit-up stock next trading day, first find the stock, then click the order page. In the bottom right corner (indicated by the arrow), there’s a conditional order option. Click it to go to the next page, where you need to set three conditions: 1) Price condition—trigger price, the stock hits this price to activate the order; 2) Entrust price—order price after trigger.

On this page, the next day’s limit-up price for Huadian Liaoning Power is shown as 6.89. Set the trigger price to 6.89, and the entrust price to the limit-up price. You can set the trigger slightly below (e.g., 6.86) to increase the chance of triggering early, but don’t set it too low—about three cents below is the limit. Also, choose your position size based on your risk appetite.

After setting these, click submit. The next page allows you to set the order’s validity period—set it to one day to avoid forgotten orders that could trigger unexpectedly later.

A flaw in TongHuaShun is that it requires manual confirmation after trigger. It only sends a notification, and you must confirm manually to place the order. This delay can be fatal—by the time you confirm, the stock may have already hit the limit or moved away. For quick, reliable execution, automatic order placement is crucial. Only some broker platforms support this feature in TongHuaShun. Check the account addition page to see which brokers support cloud conditional orders; if supported, you don’t need manual confirmation.

Note that if your broker’s TongHuaShun account doesn’t support cloud conditional orders, it doesn’t mean the broker’s own software lacks this feature. Most brokers do have it, but TongHuaShun often limits or removes it. Even if available, trigger speed in TongHuaShun may not match the broker’s native platform.

Besides trading functions, TongHuaShun’s dynamic grouping also has issues. On Eastmoney, dynamic grouping refreshes right after the 9:25 AM bidding, which is normal. But TongHuaShun often delays by several minutes, which is deadly for short-term trading—since the critical window is within five minutes after the market opens. This delay can ruin quick trades, so I rarely use TongHuaShun for active trading, mostly just for browsing hot lists.

4. Final Summary
In today’s uncertain external environment with frequent black swan events, the Shanghai Composite Index has broken all nearby support levels, fully entering a downtrend. In such a market, technical indicators are largely ineffective, and most trading strategies have failed, losing their original profit potential. Under these conditions, staying in cash is the best approach. Many traders rush to recover losses or are driven by greed, but such behavior often leads to bigger losses.

Staying in cash is a form of discipline. Successful traders understand the importance of timing their exits. They realize that every strategy has its environment; when that environment is lost, continuing to trade only increases mistakes. If you observe recent live traders, those suffering larger losses are often those still heavily leveraged in this kind of market. True skilled traders have already reduced or closed positions, waiting for a new cycle to re-enter. Only then can they achieve substantial profits.

5. Daily Must-Read Posts
If you’re interested in my trading system or have questions, check out these five highly valuable and detailed posts. Most of your questions are answered there. I strongly recommend you read them. Stock selection formulas, trading systems, and basic questions are all covered!

[Red Envelope] Detailed Post Fifteen, Quantitative Trading System: Quantitative Action

[Red Envelope] Detailed Post Thirteen, The Path to Mastery

[Red Envelope] Detailed Post Eleven, Auction Trading System (Updated)

[Red Envelope] Detailed Post Ten, Software Trading System, Little-Known Tips

Detailed Post Eight, Auction System and Trading Issues During Market Opening

6. Final Summary
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