Today, let's discuss a very heart-wrenching issue: how does capital escape at high levels?
The reason it's heart-wrenching is that every time at the peak, capital indeed quietly exits the market.
And every time at the peak, retail investors are still aggressively adding funds, buying on the rise, and eagerly looking forward to it.
When retail investors realize that something is wrong, they have already been firmly trapped at the top of the mountain.
How is the market's high-level temptation to buy more completed, and how does capital operate at high levels?
Today, I will take some time to explain to you how capital plays at high levels.
How do they ensure their own interests while being able to exit under the noses of retail investors?
First, you need to understand one thing.
Capital cannot escape the top instantly at high levels; the market simply cannot bear it, which means capital exits step by step.When we observe a significant bearish candlestick, or even a large bearish candlestick, appearing at high levels, it signifies that market capital is directly liquidating and exiting.
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In other words, when a bearish candlestick comes down and a break occurs, the large capital has already made its escape.
To be more clear, why does volume increase at high levels?
An increase in volume represents divergence. It may seem that the market is becoming more active, but in reality, the market's divergence is increasing.
Large capital wanting to flee will definitely make a move. The active volume at high levels is the basis for their escape.
Retail investors must have a question.
The market needs capital to enter for an increase, which also leads to an increase in volume. How to determine whether the increase in volume is for exiting or for capital entering the market.
Thus, a term has emerged in the market: "volume expansion with price stagnation."
In simple terms, it means that the market shows an increase in volume at high levels, but there is no corresponding rise in indexes or other aspects.
If large capital is pouring into the market, it will inevitably push up the stock prices.To fundamentally understand, capital is meant to make money, and it can only profit when it rises. Increased trading volume does not necessarily mean profit, as it could also be a sign of preparing to flee.
Therefore, sometimes when everyone is watching the excitement, it does not mean that there is actually an increase in capital in the market.
Instead, at certain times, there is a game of existing capital, preparing for the exit of capital.
If the result is a stagnation in the face of increased volume, what is the underlying cause?
There are several points that retail investors may not be aware of, but they are the root of the problem.
1. High-position capital is cautious, holding positions and cash in an equal manner.
You think the main force is fully loaded from the bottom, fighting to the top.
But in fact, the main force has already started to reduce positions when approaching the high position.
The reason we see the trading volume increase is because the main force has changed from buying to buying and selling at the same time.
Capital is actually cautious, because they themselves do not know where the top is.Everyone wishes for the peak of a bull market to be as high as possible, because the more it rises, the more money is certainly made.
So why not hold a full position and wait for the rise? It's because the risk control system of large capital must be primarily focused on risk prevention, and securing profits is the top priority.
Therefore, when operating at high levels, capital will be short, flat, and fast, and reduce positions, waiting for others to push the price up.
The holding of positions and cash will gradually return to a 50-50 state, rather than a one-sided holding of stocks.
As for the issue of volume, it is actually the result of capital being piled up through turnover.
2. The market does not have an absolute lure of more buyers; it only lacks insufficient followers.
Many people finally understand after seeing the top that this last rise is a round of luring more buyers.
But in fact, luring more buyers is only a result, not a process, and there is no such thing as an absolute lure of more buyers in the market.
When capital pushes up the stock price, it must pull and retreat at the same time.
Pulling up is necessary to digest the pressure of selling, and retreating is to return the chips to the followers.You can never rely on the trend-followers to buy, buy, buy, and to eliminate the selling pressure above; they are the ones who chase the rise.
Thus, the capital can only first create an uptrend, attract capital to chase in, and then return the chips to them.
There is a situation where the capital will stop working, which is when there is not enough trend-following, leading to the high position to eat chips.
The selling pressure is eliminated by oneself, but the chips cannot be distributed, and at this time, it will appear very passive.
Because the chips at high positions will greatly increase the cost of the main capital, the main force will also start to do a short position.
First, the price is suppressed, so the selling pressure will be reduced, although the trend-followers are still insufficient, but there will still be some replenishment of the plate.
3. Market rotation is the fastest way for capital to leave the market, high-frequency harvesting.
The market's final harvesting method is actually high-frequency rotation.
When the trend-followers are insufficient, rotation is the best way to squeeze the market.
Because retail investors are constantly chasing high, they like to follow the market hotspots.When the market has an absolute hot main line, the whole market has a backbone, capital is clustered, and the profit effect is good.
But when the main line of the market begins to adjust, and the side lines come on in a messy way, capital will be like a headless fly, bumping around everywhere.
Then, hitting a wall will kill a batch of capital, which will quickly consume the following plate.
Short-term rapid rotation will trap a large amount of capital at high positions, unable to move, and also lay the foundation for the main capital to escape.
Once it returns to the situation of shrinking volume, the capital has already left smoothly.
The market's ending is usually concluded with a medium or large bearish line, and then it starts to shrink.
The reason for the shrinkage is not that the market's differences are getting fewer and fewer, but the main capital has already retreated.
The real main capital will not return to the market in the short term, they will take a break.
At least it has to wait for the index to fall by 10-20%, and they will slowly build positions and enter, which is a long cycle process.
When the market shrinks and enters the stage of a bear market, it should be clearly recognized that the market's situation has ended.The peak of an individual stock may form in just one or two days, while the peak of an index must go through a process.
After the top is formed, the dense trapped positions require time and cycles to digest until the capital settles again and the chips return to the hands of the main force.
Sometimes, retail investors are trapped at high positions but still subjectively bullish and optimistic, which is actually a psychological factor at work.
Subjective consciousness can easily lead to misjudgment of the future.
When the market does indeed show clear signals, such as a large bearish candle at high positions, it indicates that the market may have undergone a drastic change.
Our market is very cunning, especially the main force capital.
Several major tops, such as 2245, 6124, 5178, and 3731, all ended up forming a double top pattern.
That is, the capital at high positions will repeatedly lure more buyers until it exhausts the last of the market's followers.
When almost everyone is fully invested and trapped at the top, the capital will then fall in a venting manner.For them, at that time, whatever price they could sell at and however much they could get rid of was a profit.
They must be brave enough to reduce their positions when the market is high, decisively cut losses when the market crashes, and clear their positions when the trend changes to wait and see.
Retail investors need to understand how to control risks first, and then think about how to make money.
It's not that every penny has to be earned, and one should not put their principal at risk.
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