[Red Envelope] From Theory to Practice Series: Essential Articles Part 6 — Build Your Short-Term Holy Grail: Trading System (Bonus at the End)

Hello everyone. If it weren’t for the mask period back then, we probably wouldn’t have met. After graduating from college, I worked like a “cow horse” at a foreign trade company. Later, I just went ahead and started on my own, and I was still living a pretty good life. During the mask period, business was obstructed, so I started getting in touch with stocks with friends. At first it was swing trading, and it’s been nearly 5 years now. After entering the business, I realized: this is just too much fun—it’s so perfect for me. My personality leans more introverted, but sometimes I also get really fired up, so whether I’m an “I person” or an “E person” is hard to say. Anyway, I just like sitting down to study and review. I can do that all day without getting tired. Later, I even treated swing trading as my second entrepreneurship in life,投入十足的热情与精力. Yes, it’s because I love it. In the first two years, I used more than 8 hours a day for practice, and for reviewing and summarizing. One year’s growth efficiency was basically equivalent to five years for other people. This point, old fans definitely won’t doubt, because after I started coming to Taoguba on March 9, 2026, I’ve been carefully writing content every day. Every detail, I strive for perfection.

Why do I now have so much time to write content? It’s because I previously spent a huge amount of effort building and completing my trading system. My own trading can be completed every day by before 10:00, so I have the time to share some things that my own cognition tells me are worth talking about. Being recognized is satisfying too—just like hitting the daily limit boards; it’s also a kind of fulfillment.

Sincerely hope that I can help fellow travelers who are still pushing forward in swing trading.[Taoguba]
For me, there is both poetry and distant horizons, as well as milk and bread. I talk about mindset and pattern and the “unseen principles,” but I also talk about real, practical takeaways—real execution.
My focus areas for research and execution: the core popularity stocks in hot sectors. Through a self-developed high risk-reward trading system, achieve long-term and stable upward performance.
Welcome everyone to like, save, and follow. The next update won’t get you lost—let’s stride forward into the light together!

Given that some new fans, after just following me, still don’t have a clear idea, it’s necessary to highlight what we do in swing trading research every day here:
Before 8:00 in the morning, I’ll post that day’s pre-market strategy in the comment area of the latest main post;
From 9:15–10:00 in the morning: personal trading time, “flight mode”—carefully watch the market and record everything, focus on trading;
Around 10:00 in the morning, share the battle status of that day’s operations—most trades are completed in this phase;
Before 21:00 in the evening, conduct a full-spectrum review of that day’s market, sectors, personal trades, and “good stuff” thinking.

On normal trading days, the post title will be《Month day Swing Trading Research Institute Review——》, performing a comprehensive review of that day’s operations and the market, and the mindset insights generated from that will also be shared.
On weekends or holidays, the article title is《From theory to real-world execution series—practical hard-core articles——》. Connect theory with real practice, and gather some down-to-earth ideas into a written piece.
As I keep thinking and improving, if there are parts I haven’t done well enough, welcome everyone to criticize and correct me.

Every day we trade in real practice, and at night we review and summarize—day after day, all this effort is for what? Of course, to make money! In the swing trading market, those who can be consistently profitable are definitely players who have an effective trading system—what people call the “Holy Grail.”

The real Holy Grail was never some magical indicator or a single insanely profitable行情. It’s a complete, closed-loop, executable trading system. In the past month, the swing trading market can be called the “touchstone” that tests the trading system. After the market surged to 4197 points in early March and then quickly crashed, on March 23 there was a one-day plunge of 3.63%. More than 5,000 stocks across the whole market fell, and panic sentiment spread everywhere. Then the market quickly repaired but also kept oscillating and churning. In early April, it showed a frustrating pattern of “up one day, down two days.”

On the sector front, main themes rotated fast—optical communications, computing power, innovative drugs, and electricity, etc. The leaders alternated between consecutive limit-ups and limit-up failures. Tianjin Pharma (津药药业) newly became a market leader with a 6th consecutive limit-up, while Hua Dian Liaoning Energy (华电辽能), an old leader, went into a slow and steady decline. In such an extreme choppy environment, where opportunities and risks coexist, whether you have a system—or not—ultimately makes your account results vastly different.

The content of today’s article starts from building the five core modules of the trading system, and then combines recent operation case reviews to explain the trading Holy Grail clearly, guiding classmates to achieve the transformation from “trading based on hunches” to “profit based on a system.”

I. Breaking the cognition deadlock: the essence of the trading Holy Grail is a closed loop of probability and risk control

Before constructing a trading system, you must first shatter the fantasy about the “Holy Grail.” The market has no method with 100% win rate, and there is no strategy that never loses. What people call the Holy Grail is essentially a positive expectation closed loop built on “high win rate + high risk-reward ratio + strict risk control.” By repeating execution again and again, you let the “good probability” stand more on your side, thereby achieving long-term and consistent profitability.

(I) The core underlying logic of swing trading
The source of profits in swing trading isn’t the long-term growth of a company’s fundamentals, but rather the short-term sentiment fluctuations in the market, capital games, and the price differences caused by theme rotation. Its core logic has three points:
Sentiment premium: when the market is panicking, it oversells and becomes undervalued; when it gets greedy, it overprices. Use extreme sentiment in the opposite direction to capture mean-reversion gains;
Capital force: swing trading is a capital-driven market. Follow the direction of mainstream capital (retail day traders, institutions). Play the mainline hot spots and enjoy the premium from capital clustering. This is a common swing trading participation template we see;
Trend inertia: in strong stocks, strength tends to persist; in weak stocks, weakness tends to persist. In swing trading, you only trade along the trend after consecutive limit-up confirmation. Don’t predict or fantasize—just follow.

(II) Core metrics for stable profitability: win rate and risk-reward ratio
Many traders pursue “90% win rate,” but ignore the risk-reward ratio, and ultimately they profit a little while losing a lot. Others pursue a “10x risk-reward ratio,” but with extremely low win rate, it’s hard to cover losses in the long run. A truly stable profitability system is built on swing trading win rate of not less than 55%, while expanding the risk-reward ratio.

What is win rate: the proportion of profitable trade counts to total trade counts. When a swing trading system’s win rate reaches 55% or above, in my view it’s qualified. And a long-term win rate above 65% can already be called excellent;
What is the risk-reward ratio: average profit per trade ÷ average loss per losing trade. A swing trading system with risk-reward ≥ 2:1 is qualified, and ≥ 3:1 is excellent;
Let me use my personal execution from last week as an example:
Last week, I participated in 3 practical setups that completed BS within the week: Oryde (奥瑞德) (+9%), Shengyang Co., Ltd. (圣阳股份) (-4%), and Tongda Co., Ltd. (通达股份) (+12%) (there are real-trade records in prior posts).

So, what was my win rate last week? 2 winning trades / 3 total trades = 66.67%. As mentioned earlier, reaching 60%+ is fine. Since this only counts last week (a single week), the win rate is higher. When expanded to several months or several years, if overall win rate can reach around 60%, that would be excellent.

More important than that is the risk-reward ratio!
For the two winning trades, the average profit rate is (9% + 12%) / 2 = 10.5%. For the losing trade, the loss rate is 4%. Then last week’s risk-reward ratio is 10.5 / 4 = 2.63:1—close to excellent. But because there were no big winner trades of 20 points or more in a single trade, it still didn’t reach ≥3:1.

If you repeat and copy this again and again, and then add compounding, how could your account not grow?

——So, this small chapter might change your perception: the account’s positive growth doesn’t come from strictly chasing win rate. It comes from expanding the risk-reward ratio—what everyone commonly says: make big profits and cut small losses! As long as win rate can stay at 55%+ long term. But if your risk-reward ratio is consistently below 2:1, or even lower, then you need to seriously reflect on your system: when you “eat meat,” you’re not eating enough—only sufficiently big meat is the safety guarantee for your account.

II. Building the trading system: five core modules to create a complete profitable closed loop

A complete swing trading system must include five modules: stock selection, entry points, exit points, risk control, and review. They connect to each other, and none can be missing. Each module must have clear, quantifiable, executable rules, to prevent random trades “based on hunches” or “impulse” during the session.

(I) Module 1: Stock selection system—only trade mainline leaders, don’t touch random followers
The core of swing trading stock selection is “select the stronger within the strong” and “focus the mainline.” Give up 90% of weak stocks and marginal stocks; only lock in the current strongest mainline and strongest leader in the market. The mainline is clear on the last trading day before the holiday. Stock selection then just needs to revolve around three major mainlines:
AI computing power: optical modules, liquid cooling, AI servers, storage chips—core names like Xineng Taisun (新能泰山), FiberHome Technologies (长飞光纤), etc.;
Innovative drugs: chemical pharmaceuticals, CXO—core names like Tianjin Pharmaceutical (津药药业), Double-Trust Pharma (双鹭药业), etc.;
Swing trading stock selection rules of iron (quantifiable standards):
Mainline sector confirmed: the sector’s consecutive 3-day price increases rank among the top; the number of stocks hitting limit-up is ≥5; there is policy/event catalyst (such as AI computing power conferences, innovative drug overseas expansion, geopolitical stimulation);
Leader screening: among the mainline sectors above, generally choose the top two by consecutive limit-ups for comparison and observation.
Exclude targets:
Non-mainline sectors, unpopular stocks, ST stocks, problem stocks (earnings blowups, regulatory inquiries);
High-position low-volume stocks (you must let them go after there has been too much divergence/fragility before participating; participation can be completed intraday);
Follower “杂毛” in the hype (limit-ups late in the sector, weak buy orders on the limit-up, small price increase; when the leader drops, followers drop even faster).
About only trading leaders and not “杂毛,” I’ve emphasized this point many times in my previous posts.

(II) Module 2: Entry point system—precise timing, trade only at key locations
The core of entry points is “follow strength turning on.” Only enter when consistency is re-established with strong capital support in moments of disagreement turning into agreement, so you avoid “buying halfway up” or “buying at the disagreement point.” My understanding of swing trading entry points has three categories, suitable for different candidate orders:

1. Direct turn-strong entry point (mainline start period; leader mid-phase)
   Applicable scenario: during the main uptrend confirmation of a hot sector, where the highest limit-up (usually the leader) then gaps up strong directly the next day; at that time, a direct turn-strong entry point can apply.
   Buy conditions:
   Place order during the pre-open auction: during the auction period, after comprehensive judgment you believe it’s truly turning strong—you can directly participate during the auction. For example, if Tianjin Pharma goes from three to four with direct turn-strong, even with a short-tail T-shape (short tail, T pattern), there is still a chance; and the next day it tops into a one-line (straight) limit-up board.

Place order after the auction: if during the auction period you can’t clearly confirm whether it’s truly turning strong, observe until the auction ends for higher certainty. If after the auction it still maintains a very high opening, then before market open you can place a limit order at a reasonable price as a pre-order. For example, Tongda shares opened more than 9% high on Thursday. If the day’s sentiment is also not good, you can place a pre-order at a relatively lower price and wait. That day it gets the limit-up, and the next day it still opens very high to confirm a big win.

2. Follow turn-strong entry point (buy when disagreement turns into agreement)
   Applicable scenario: during the main uptrend confirmation of a hot sector, when the core stock shows disagreement at the open.
   Buy conditions:
   When you confirm disagreement turns into agreement, you can’t trade based on imagination that it will turn into agreement. “See it to believe it.” Follow quickly when it turns into agreement.
   Practical case: March 24 Hua Dian Liaoning Energy (华电辽能)

3. Bottom-picking entry point (mainline adjustment period)
   Applicable scenario: after an old theme rises and then stops to adjust, but the heat is still there. You can look for low-entry opportunities on the original popularity stocks.
   Buy conditions: candidate setups have -5% opportunities or better—when there is enough safety.
   Practical case: March 31 Oryde (奥瑞德). Low buy at -6.25% underwater, it hits the limit-up instantly the next day; on the third day, it rises above water and pumps up with positive energy to full throttle.

(III) Module 3: Exit point system—if you can buy, you’re a disciple; if you can sell, you’re a master
Swing trading exit points are harder than entry points. The core is “take profit decisively, cut losses firmly, no greed, no attachment.” Many classmates profit a little but incur bigger losses due to “selling too late” and “not cutting losses,” and also because they “judge wrong and can’t bear to hold the position.” Exit points are of two types: take-profit exits and stop-loss exits, and the rules must be explicit:

1. Take-profit exit points
   Fixed take-profit: applicable to short-term arbitrage tickets. Short-term target profit is 10% (T+2). Once it’s reached, sell all shares immediately;
   Trailing take-profit: applicable to leader-seed tickets. No upper limit set for the short-term target. Once the holding conditions are met, continue to eat consecutive limit-ups until it starts to fade—when volume increases but price action stalls due to divergence—and then fully exit.
   Fixed take-profit practical case: March 31 Oryde (奥瑞德). Low buy at -6.25%, then you can set orders according to the fixed take-profit 10% principle for T+2 days, and smoothly achieve the target. Similarly, this also works for Tongda shares.

Trailing take-profit practical case: March 5 to March 12, Jin Kai New Energy (金开新能). I predicted it would become a market leader, so I locked the position and only gradually took profit after I got the take-profit signal, reaping 35%+.

2. Stop-loss exit points (sell when you’re losing to control risk)
   Fixed stop-loss: when the price breaks below the 5% “red line” of the cost basis, you must not keep holding. Find a good intraday time to sell;
   Technical stop-loss: breaks below a key support level (5-day/10-day moving averages, prior swing low), or when the sector weakens, the leader fails the limit-up or weakens—sell immediately;
   Fixed stop-loss practical case: March 23, after a limit-up price entry into an electricity follower stock, Zaitai Power (正泰电源), based on the leader’s action. The next day it gapped down -1.25% and was then smashed directly to the limit-down price. That means the maximum loss reached 10%. Since it already triggered the -5% red line, you must not leave it there anymore. Activate the fixed stop-loss mechanism. After the price gradually recovered, I took profit in two rounds, taking full exit with an average price around -4%, with the loss held at about 4%—which is a great defense of the 5% loss bottom line. If you didn’t follow this principle, you might end up exiting at underwater -8%, because you panic at the limit-down.

Technical stop-loss practical case: March 30, 2026, Jin Kun Power (晋控电力) triggered the technical stop-loss principle. That day Hua Dian Liaoning Energy (华电辽能) opened much lower (-5.90%). When the leader weakens, the followers in the “Sunzi-generation” electricity theme—i.e., Jin Kun Power—must not be kept. Exit everything during a small rebound at the open, and then it falls into the limit-down right after.

(IV) Module 4: Risk control system—the lifeline of trading; survival first
Risk control is the core of the trading system. Without risk control, even the strongest system ends up at zero. Swing trading risk control is divided into three layers: position sizing risk control, target risk control, and sentiment risk control:

1. Position sizing risk control (the core of the core)
   Iron rule one: never go all-in
   Total position: during sentiment uptrend ≤60%, during consolidation ≤40%, during drawdown/retreat ≤20% or even cash only;
   Single stock position: ≤20% of total capital. Same-sector positions ≤30% (to avoid sector risk).
   If your account size is relatively small, you can slightly increase the above ratios.
   Iron rule two: one entry—never add
   Opportunities for good swing trading stocks appear and disappear fast. In the moment it turns strong, you must deploy your prepared position size fully—one entry completes it without hesitation.
   Don’t average down when losing: never add to “dilute the cost.” Adding during a short-term trade means admitting an error; the longer you get stuck, the deeper you sink.
   Iron rule three: split positions to avoid black swans
   Number of holdings: 1–2 different mainline leader stocks, don’t concentrate on just one stock or one sector.
2. Target risk control
   Only buy mainline leaders, don’t buy followers and杂毛;
   Only buy targets with circulating market cap ≥ 3 billion, to ensure liquidity;
   Exclude stocks with earnings blowups, ST, regulatory inquiry, and negative news like share reductions.
3. Sentiment risk control
   Three consecutive losing trades: stop trading that day and review why;
   Account drawdown ≥10%: forcibly go to cash for 3 days, adjust mindset, and review why;
   Don’t act impulsively during the session: don’t buy temporarily based on impulse when it’s not in your watchlist/candidate pool; don’t chase gains or cut sells impulsively.

(V) Module 5: Review system—key to system optimization, continuous evolution
Review isn’t just checking up/down moves. It’s the process of verifying the system, correcting rules, and accumulating experience. Make sure you review at least 1 hour every day; it’s more important than intraday trading.
The five-step method for swing trading reviews:
Market review: index trend, trading volume, number of advancing/declining stocks, sentiment indicators (number of limit-ups/limit-downs, the failed board rate);
Mainline review: confirm the strongest mainline and second-strongest mainline of the day, number of sector limit-ups, and key leader stocks;
Stock review: how your held stocks moved, whether your buy/sell points followed the system, and the reasons for profit/loss;
Signal review: whether there were issues with buy points/sell points. If there were, analyze why you missed it and optimize system rules;
Tomorrow’s plan: select tomorrow’s stock watchlist, buy points/stop-loss levels, and position plan—and execute strictly.

Conclusion: the trading Holy Grail is a cultivation of unity of knowledge and action
The process of building the trading Holy Grail is never a pile-up of techniques. It’s a comprehensive cultivation of cognition, discipline, and mindset.
In cognition: understand that the market’s essence is probability and game theory, accept losses, and embrace positive expectations;
In discipline: strictly follow system and money management rules, don’t cross the red line, and constrain yourself like iron laws;
In mindset: don’t get arrogant when you win, don’t get disheartened when you lose—don’t be shaken by rising or falling. Treat trading as boring repeated execution, not thrilling gambling.
From today onward, stop searching for those illusory “magical indicators.” Calm down and build your own trading system, refine your money management rules, and execute, review, and optimize in real practice again and again. When you truly achieve “a complete system, strict risk control, and execution in place,” you will find that the trading Holy Grail isn’t somewhere else—it’s right in your day-after-day persistence and self-discipline.

Final note Easter egg: For some classmates, they haven’t reached a certain level yet in their operations, so I thought of a unified standard you can use as a reference. Within T+2, take profit at +10%, stop loss at -5%, and when it’s a leader seed, continue holding. This is an important idea to eliminate ineffective high-frequency trading. Because from then on, your mind has principles and a target. Subjectively, it reduces the possibility of acting arbitrarily; objectively, it avoids the damage of operations not being timely.

For example, say on Thursday with Tongda shares you have a 3-point floating profit. Based on the hold within T+2 days, under the +10% take-profit principle, you set a sell order at 7% on the next day at 9:15, and you exit instantly at the open—got it? For the -5%: it doesn’t mean that intraday or at the day’s close it prints -5% and then you instantly sell on the next day—that would create problems. Some specific details will be updated in the comment area.
This is the general guiding principle. Of course, I also know that there will be issues during execution—differences are allowed while keeping common ground, right? Still, the same sentence: I only provide good ideas, and I refuse simple and brutal follow-copycat trading!

Statement: This article is only a record of my own operations. Trading involves risk; you must exercise caution. The content is personal ideas and records only, reflecting my own understanding of the market, and is only shared as personal documentation. It does not constitute any investment advice. For reference only—if you trade based on this, you bear all gains and losses.