Article Statement: All content is derived from the original theory of entanglement, with personal insights added. To grasp the most original understanding, one must contemplate the original. This note focuses on the first and second types of buying and selling points in the theory of entanglement and should be read in conjunction with the previous notes.
31. The only way to control risk is to set up a system that makes the uncontrollable and indescribable risks become describable and manageable within that system. This is the only way to long-term outperform the market.
32. One must set a classification and evaluation system based on one’s actual situation, such as capital and operational level, and then set a corresponding response program for all possible situations according to that classification system. In this way, all risks can be operated in a manageable manner. The only thing the operator has to do is to take the corresponding action once the relevant situation arises. For a currency, the actual operations are merely three: buy, sell, hold. Thus, any investment operation evolves into such a simple mathematical operation: N completely classified risk situations correspond to three choices (buy, sell, hold).
33. For example: in a simple buying and selling system formed by the 5-day and 10-day moving averages, first, the 'Heavenly Positions' of both form a complete classification. 'The Great Sun in the Sky' is bullish, 'The Bright Moon Hanging High' is bearish, and there is also a situation of mutual entanglement. This situation will ultimately evolve into either bullish or bearish, only having two natures: continuation or reversal. Accordingly, a very simple operating system is produced, which intervenes after the 'Heavenly Positions' have mutually entangled. For bulls, this operating system faces only two results - becoming a bull successfully or failing to become a bear. If entangled and it is a continuation, it extends the original 'Heavenly Position'; if it is a reversal, it changes the 'Heavenly Position'. Therefore, for bulls, the only two situations worth intervening are: 'The Bright Moon Hanging High' reversal; 'The Great Sun in the Sky' continuation, and vice versa for bears.
34. For any trend, the primary judgment is the 'Heavenly Position'; whether it is 'The Bright Moon Hanging High' or 'The Great Sun in the Sky'. If it is the case of 'The Great Sun in the Sky', once entangled, the only thing to deal with is whether this entanglement is a continuation or a reversal. It can be said with certainty that there is no way to be 100% sure about this issue, but there are still many ways to make the accuracy of the judgment sufficiently high.
35. For example, the possibility of 'The Great Sun in the Sky' appearing for the first time with entanglement continuation is extremely high. If it is the third or fourth time, the likelihood is greater that this entanglement is a reversal. Additionally, before the first entanglement appears, the 5-day moving average must be very strong, not flat; otherwise, the entanglement is most likely a continuation, which will at least lead to an upward movement. The trading volume before the entanglement must not be too large; if it is too large, the probability of false signals will greatly increase. If there is a sudden spike followed by rapid shrinkage, even if there are no false signals, the entanglement time will also increase.
36. 'The Great Sun in the Sky' chooses the first occurrence of the entanglement continuation, while 'The Bright Moon Hanging High' is the opposite, looking for the last occurrence of entangled reversal. If a sharp drop appears afterwards but diverges, that is the best buying opportunity. Bottom-fishing is not impossible, but it can only be chosen in such situations. However, no one can confirm 100% that it is the last entanglement. Generally, the first entanglement after 'The Bright Moon Hanging High' is definitely not; from the second occurrence onward, it is possible. The most powerful way to judge is to utilize the short-selling traps created by divergences.
37. In summary, using the buying and selling system formed by moving averages, the first step is to use the short-selling trap formed by the divergence after the last entanglement of 'The Bright Moon Hanging High' to enter at the bottom. This is the first position worth buying. The second position worth buying or adding to is the low point formed by the first entanglement after 'The Great Sun in the Sky'. Under this system, the risks of these two buying points are minimal. To be precise, the ratio of returns to risks is the largest, and they are the only two points worth buying.
38. It must be pointed out that this does not mean that these two buying points are risk-free. The risks lie in: for the first buying point, misjudging the continuation as a reversal and misjudging the divergence; for the second buying point, misjudging the reversal as a continuation.
39. Understand it at the time of buying, and selling can be the opposite. Once bought, one should hold on and wait for the first selling point, which is the divergence that appears after the entanglement of 'The Great Sun in the Sky', as well as the second selling point, turning into the first entangled peak of 'The Bright Moon Hanging High', and sell the item. This completes a full operation.
40. Note that it is generally best to buy at the second buying point and to sell as much as possible at the first selling point. This is the difference between buying and selling. Understanding this, any behavior that does not buy at these two buying points is unforgivable, as it is a fundamental error.