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Video transcript
Hi everyone, this is Louie. I’m a full time trader. I trade options and futures, and I’m so honored to help translate Chinese subtitles for the Brooks Trading Course. In the past week or so, the stock market in China and Hong Kong has been on fire. It has this record breaking rally that nobody has ever seen.
Some of China’s top companies are listed in the US as well. In fact, there are 200 plus Chinese companies listed on NYSE and NASDAQ. With a total market value of nearly 2 trillion US dollars. That’s something worth paying attention to. Not just for traders in Asia, but for traders, investors from all over the world.
I want to thank Al and Richard for giving me this opportunity to talk to you guys about what has been happening in China. Let’s get into that. Personally, I do not trade the Hong Kong market. Most of my trades take place in the US market. I trade options of indexes and different kinds of stocks. But I do have a smaller account in China and I actually traded this all the way up.
I post my account and trading records in my own channel. And in this video, the first thing I’m going to talk about is how to trade such a strong breakout, how to enter, what position size did I use? How did I manage my risk? And how did I scale into my winning position and maybe a little bit trading psychology of buying higher and higher.
Now, when it comes to the Shanghai composite index. 3,000 points has always been considered as something extremely important because if you look to the left, the market has been in a huge trading range for almost 8 to 10 years, which is crazy. It just kept consolidating up and down around 3,000 points.
So a lot of people think, um, there’s going to be some strong support or resistance near 3,000 points. And in China, they have something called protect 3,000 points. As you can see here. The market broke above and then comes back to test 3,000 points, it bounced, it bounced again. But right here in June 2024, which is three months ago, I kept warning my followers.
You don’t want to buy here. Just forget about the protect 3,000 points thing because the market has been in a fairly tight bear channel. If you look at this, there is some small pullback, but the bull bar is not that big. And the pullback only lasts one or two bars. You can draw the trend lines and you’ll find the channel being extremely tight.
So this is a tight bear channel on a daily chart. And if we go to the weekly chart. This is actually a strong bear breakout, a series of consecutive bear bars. So the market was always in short and you just can’t assume there is support at 3,000 points. You have to assume that the market will keep going down at least a small leg down.
So the market broke below it, pull back, retest the 3,000 points. It was support and now it became resistance and then kept going down. However, if you look at these two huge bull bars. They told you that the best bears can get is probably a trading range, which means there’s probably way more buyers than sellers below this area.
Let’s go back to the daily chart. In the video course, Al talks about the importance of the lowest close in a bear trend and the highest close in a bull trend. Since I was looking to buy the dip, I was paying attention to the lowest close of the previous bear trend, which is right here. And you can see This is exactly where the market started to rally.
So I didn’t buy anything until here. Since there’s no way I could see this coming. I bought with a tiny position because I plan to, um, scaling lower betting on the breakout to fail. This is a bull surprise because some huge fundamental changes happened. And it’s quite interesting that news or fundamental changes always happen near a strong support or resistance.
Just like here. And I remembered Al warned about a deep pullback right before the pandemic in 2020. And obviously Al didn’t foresee the pandemic. He didn’t foresee the market would crash 30 percent within just two weeks, but that’s how the market works. When the market arrives at a strong support or resistance, or maybe a nested wedge, something would happen.
If not a pandemic, maybe something else. And that will cause the market to crash or deep pullback as well. And that’s not a coincidence in my opinion. Because everything, every possibility has been priced in. So price action is everything. Price action is the truth. Same thing here. Now, since I didn’t see it coming and I was wondering still tight bear channel, even tighter on the weekly chart, the first reversal up probably would fail.
So I placed a bunch of sell limit orders here to take profit. And I didn’t pay too much attention to the Chinese market back then. Um, because that’s not my major market. So this bull surprise actually hit my orders and I took most of my profit here. But when I see this one, I realized something’s different.
It has a huge body close on its high. It broke above the bear trend line. It broke above some moving averages for sure. And it’s close. is above the close of previous maybe 15 bars. So very strong breakout. And I realized things have changed. Bulls are buying, bears are getting burned, they’re getting out.
So I was wondering what would the follow through look like. And here’s what we got. It’s a small doji bar with a little bit bear body, prominent tail above. Is this a good follow through or a terrible follow through? To me, it’s a good follow through, at least acceptable, because it closed above yesterday’s high and it has a gap up.
The gap is still open. But if you unfortunately have read some books that have misleading information, you probably want to sell out all your position here, or you probably want to go short. But no, this is a good follow through and this is just a pullback. So instead of selling, I bought more on this close.
I scaled in. And here I want to talk a little bit about something called apophenia. When they see a bar like this, they’ll feel like if the market could go down like this, then this pattern is just so beautiful. It would just look as beautiful as a tower. So people tend to connect things that are actually not related at all.
And this is caught at Buffini. But if you have watched the video course carefully, when Al talks about pullbacks and bar counting, he gave you the definition of a pullback. This bar is not an actual pullback because it didn’t break below the low of the previous bar. But this is an implied pullback because if you go to a smaller time frame, you’ll see an actual pullback.
So people always talk about, well, this is too fast. I want to buy the pullback. Well, this close is a perfect place for you to buy. If you look at some kind of line chart, it looks like this. So this is a pullback. And it’s a great entry for the bulls. See what’s happening next. Another huge bull bar closing on its high.
These two bars, they have no tails above, not even a little bit. And to me, this is seven consecutive bull bars and clearly the market is always in long. So I bought more on this close again, the same question. People come to me and ask too fast, too high, a little bit scary. I want to wait for a pullback.
However, the problem is. When you are waiting for a pullback, probably everyone else, every trader in the market is waiting for a pullback. Then if the pullback does happen, guess what? The price drops a little bit and a bunch of people just flooding to the market and buy the pullback, which means there’s probably no pullback at all.
And Al talks about it. Whenever you feel like waiting for a pullback, don’t wait, just buy. Buy the clothes, buy the market, but with a very small position. When Al says small position, he usually means 20%. It’s not 20 percent of your whole account, but 20 percent of your normal position size. Traders buying here are very confident about two things.
Either the market will keep going up, or even if there is a pullback, They can buy lower because at least 80 percent of the chance it will have a second leg up. So I bought here with a tiny position, took most of my profit here by surprise. And I bought more here, bought more here. Whenever you see something like this.
It tells you that everyone is buying in desperate. A bunch of institutions are buying in desperate, not just Chinese institutions, but institutions from all over the world. They are afraid that if they are slower than another institution, they would have to buy at a higher price later. It is pretty climactic.
But since I think it’s the first leg up, I consider all the gaps being breakout gaps or measuring gaps. Another bull bar closing on its high without a tell at all. This tells you that everyone is buying the close. I was about 40 percent in. When I say 40%, what I mean is actually 40 percent of the money I have in the account in China.
I mentioned earlier that, um, my account in China is Actually a relatively small account. It’s not futures. I bought stocks. Um, and I didn’t use margins. So it’s just 40 percent of my money in account. I would have put in more money. I wanted to do so, but unfortunately the other 60 percent of my money I gave him to my fund manager and he bought a bunch of mutual funds for me.
And they’re not expired yet. So I couldn’t take them out. Otherwise I could have bought more. And, uh, um, you’ll see what happened next day is huge bull bar another 8%. And this is the index, the whole market rallied 8%. Sometimes you can get consecutive by climax just like this. And this is the last trading day.
Before October 8th, because it’s national holiday in China, very long holiday. So people have a seven day break. However, the stock market in Hong Kong is still open. Let’s see what happened. This huge bull bar is September 30th. which is here. It’s a small doji in Hong Kong market, another huge bull bar, and then a small bear bar closing above its midpoint.
So the market kept rallying. And it seems like that when the market reopens in a few days, it will have another gap up. And that’s when I plan to take partial profit. If it’s a huge gap up or another big bull bar, but no matter what, I’ll keep at least 50 percent of my position because this bull breakout is just so strong and I have to assume that the first reversal down, no matter what happened will be bought just like what happened in Hong Kong today, if we look at the five minute chart, pretty strong sell off from the open.
One pullback to pause three. So this is a parabolic wedge. It is a fairly tight bear channel, but you have to think about what happened on the left hand side. It’s such a strong bull breakout that any reversal down would be bought. So strong midday reversal rallied all the way up to the open, but because the opening trend is strong enough.
So 90 percent of the chance today is a training range day, which means even if it’s a major reversal, it’s not going to break far above the open. So there are probably more sellers than buyers at this area. I talked about my personal plan in the future, and I’ll keep updating my accounts and trading records in my channel.
Of course I could be wrong. Al Brooks talks about his 60 40 rule. Don’t be over confident about anything. But I do think at least 80 percent of the chance, even if it has a pullback, for sure, it will have a pullback because this kind of climactic move can now last too long. It will pull back, go sideways for a while.
But anyways, I plan to take partial profit looking to buy lower, looking to scaling lower. And in fact, I wish there can be a deep pullback more than anyone else because my money is not ready yet. However, once the market starts to pull back the breakout phase ends, the market probably evolves into a trading range or a channel.
Let’s say the market has some kind of pullback and that’s when I will start to change the way I trade because the market cycle has changed. So instead of buying high and higher, I’ll start to buy the dip and take partial profit when I see another climatic big bull bars and ready to buy lower. But I’ll always keep at least 50 percent of my position to swing until this bull trend is no longer valid.
I mentioned earlier that my account in China is a relatively small one. So I do have the plan to transfer more money back to China. But it’s kind of complicated and difficult because the China government has really strict control over foreign exchange. So it’s not easy to transfer dollars back to China and then convert them into Chinese yuan.
It’s pretty tough for beginners or for traders who are not in the market yet. You’re flat right now. You probably heard this one, FOMO, Fear of Missing Out. But actually, there is no hurry. Because if this is the beginning of a bull market that lasts months, even one or two years, there will be plenty of opportunities for you to enter and make money.
So there’s really no hurry at all. If it’s not, or if it’s just a bull trap, I personally think it’s not. But if it is, Then you’re trapped. So in either case, there’s no hurry. That actually reminds me of what happened yesterday in the e mini. So we are looking at the five minute chart of ES on the open three consecutive bear bars closing on their lows.
Now, 80 percent of the days, the first six to 12 bars are in a training range. But if you get a pair of big trend bars like this, There is a higher probability that there might be a trend from the open, but still, no matter how strong the first trend is 80 percent of the chance, there will be a minor reversal, 50 percent of the chance there will be a major reversal.
If you look to the left, actually, I have been warning my followers since the FOMC a few weeks ago, does this look like a strong bull breakout? Not at all. Big up, big down, big confusion. Next day, huge gap up. Look at a follow through this gap is closed right away and a bunch of trading range price action.
Another huge gap up, but the gap was closed right away. Another failed breakout in the trading range. You have to assume that our breakout will fail. Same thing here. Bears are trying to break below the trading range. 80 percent of chance it will fail. So if you sell here, sell here, it’s a reasonable trade.
But you’re really betting on this being the high of the day where the probability is 20 or 30%, if not lower. And if it is the high of the day, which means today is either a big bear trend day, or it’s a trading range day, right? So you will have plenty of opportunities. To go short. So there’s no need to hurry.
Same thing here with the daily chart of the Shanghai composite index or Hong Kong Hansan index. So this is what I would have done if I am flat right now, as you can see in Hong Kong Hansan index here today, it was a big bear bar, but way too many people are waiting for the pullback. So they bought it up.
What might happen is there could be a big bear bar closing on its low odds are there will be at least a second lag up. And the bull trend will continue. It’s like this on the left hand side. We’re looking at the weekly chart of NVIDIA, strong bull breakout, maybe 10 bull bars in a row. And then you have this strong bear bar closing on its low, but the bulls like, Hey, it’s a tight channel.
It’s a very strong trend. First time you try to reversal. Whatever you do, probably you’re going to fail. So they bought that close and next Monday, the market actually gapped up. The same thing could happen here. I’m just saying one of the possibilities. Now we’re looking at the daily chart of spider, the ETF of S&P 500 strong bull breakout, a series of bull bar closing on their highs, big bear bar closing on slow, and it’s an outside bar.
But first time reversal attempt failed. Same thing here. Same thing here. And same thing could happen here as well. Again, that’s just my personal trading plan. And I see all those institutions are buying in desperate, so I don’t think they’re buying for a scalp. So currently I haven’t set a target yet. I want to do a swing trade.
I want to hold my position until the bull trend is no longer valid. Of course, it can become no longer valid in just a few days. But right now, I just have to assume that it will have a second leg up.
All right, that’s pretty much what I want to share today. Thanks for listening, and I hope it helps. Have a good one, and bye bye.
