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

A little support goes a long way; continuous gains keep coming. Keep asking questions, and your profits will soar! Hello everyone, I am Longqing of WanGuZhang. [Taoguba]
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1. Introduction
After experiencing this week’s market, I believe everyone’s feeling isn’t very good. 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 about a quantitative trading system. This system was suitable for last week, but I’ve found 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 are crashing the limit up—an unexpected change regardless of the reason. At least, this formula’s stocks no longer generate profits, so it should be abandoned for now.

Next, the updated trend trading model still had some profit potential previously, but this week it’s not effective at all. I recommended trend trading when the index was stable and consecutive limit-ups weren’t happening, but with the index falling relentlessly this week, trend stocks can’t move smoothly. In such cases, trend trading should be abandoned until it shows profit potential again. Any strategy has its suitable environment; it’s impossible for it to work all the time.

Reviewing my trades this week, I only bought stocks on Monday and Friday. The rest of the time, I was in cash. I realized that previous trading strategies had become ineffective and no longer produced profits, so I chose to stay out of the market. This helped me avoid many pitfalls. When the market is bad and trading strategies no longer work, it’s better to stop trading rather than keep pushing. No successful trader in the stock market is always opening positions every day. Even top-tier traders only have one or two strategies, and they won’t trade in unfavorable conditions, preventing their capital from eroding in ineffective markets.

Based on feedback, I found many people couldn’t control their impulses this week, heavily leveraging and causing significant drawdowns. This makes future trading very difficult—losing 50% requires doubling to break even. Controlling drawdowns is the top priority in the stock market; preserving capital is the foundation for future success. This highlights the importance of staying in cash; when the market is bad, cut losses promptly. Learning to stay in cash leads to a better future.

2. Suitable Environments for Different Trading Strategies
The stock market is a zero-sum game; theoretically, every dollar you earn is taken from someone else. 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 number of signals is less than five—usually indicates that funds are not actively participating 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 strategy can’t move the market alone.

The trend main-up formula has looser conditions, requiring more than ten signals after the close to be effective. Fewer signals suggest less capital involved in trend trading, making it hard for stocks to move strongly. 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 generate signals, so there’s no quantity requirement. If no signals appear, stay in cash; if signals do, consider participating. I’ve shared the updated formulas for everyone to verify. Note that signals generated 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 formula refreshes after market close.

Additionally, simply looking at formulas isn’t enough. Each has a matching trading system that helps filter signals and refine entry and exit points. These systems are detailed in previous articles, with links at the end of the post. The first limit-up and consecutive limit-up formulas require bidding guidance to trade; 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 quant trading, most stocks involve quantitative participation. For example, when stocks hit the limit-up, algorithms often detect the signal and automatically buy in to lock in the limit. Manual trading of limit-ups is no longer practical.

Using conditional orders allows the system to place orders automatically under preset conditions—this is a form of quantification, fighting quant with quant. I want to mention Tonghua Software, which many of you use. It’s popular because it integrates many brokerage platforms, allowing login to various accounts. However, I personally rarely use it.

A key reason is that Tonghua is a third-party platform. When you log into your brokerage account through Tonghua, some exclusive features are limited. For example, the cloud conditional order feature—China Galaxy Securities’ own app supports setting preconditions for automatic trading without monitoring the market or keeping login sessions. Tonghua does not support this, nor does Galaxy’s intelligent conditional order.

A fast-trigger cloud conditional order is essential in today’s market dominated by quant strategies, especially for those who can’t monitor the market constantly. 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, based on Tonghua software.

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

The next page shows Huadian Liaoning Power’s next-day limit-up at 6.89. So, the trigger price can be set at 6.89, and the entrust price fixed at the limit-up price. You can set the trigger price slightly lower (a few cents) to increase the chance of triggering early, but not too low—about three cents below is the limit. The position size is up to your preference.

After setting these, click submit to create the conditional order. 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 Tonghua is that it requires manual confirmation after trigger. The message indicates that after the condition is met, Tonghua cannot automatically place the order; it only notifies you, and you must confirm manually. This delay can be critical—by the time you confirm, the stock may have already hit the limit or moved away, missing the opportunity.

Therefore, logging into your brokerage account directly is better. Most broker apps support fully automatic conditional orders that trigger and execute without manual confirmation. Check which brokers support cloud conditional orders in Tonghua by adding accounts and viewing supported brokers. Those with this feature can set orders without manual confirmation.

Note that if your broker’s Tonghua login doesn’t support cloud conditional orders, it doesn’t mean the broker’s own app lacks the feature. Most brokers do have cloud conditional orders; it’s just that Tonghua often limits or removes this functionality. Even if available, the trigger speed in Tonghua may not match the broker’s native app.

Besides trading features, Tonghua’s dynamic grouping also has issues. On Eastmoney, dynamic grouping updates right after the 9:25 bidding ends, which is normal. But Tonghua often delays by several minutes, which is fatal for short-term trading—since the best window is within five minutes after the market opens. This delay can ruin quick trades, so I rarely use Tonghua 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 no longer reliable, 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 only worsens losses in the wrong market.

Staying in cash is a form of discipline. Successful traders understand the importance of timing their exits. They realize that strategies only work in certain environments; once those environments are gone, continuing to trade is just increasing mistakes. If you observe recent traders, those who lost heavily are often those still heavily leveraged in this market. True skilled traders have already reduced or closed positions, waiting for a new cycle to re-enter and profit.

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 can be 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 the Dao

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

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

Detailed Post Eight, Collection Auction System and Trading Issues

6. Final Summary
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