It is often seen that certain stocks suddenly experience a rapid decline when trading is not active, and a long bearish candlestick is pulled out on the K-line chart.
Falling is another form of stock price operation besides rising. Due to the thousands of factors that drive stock prices, it is impossible for us to analyze the various types of reasons for the decline. However, even so, there is still a way to explain some of the more unique forms of decline.
The decline can be divided into various types, such as by the time of the decline, the magnitude of the stock price decline, the size of trading volume, the relative trend to the market, and so on. Here we are only exploring a common form of decline: rapid decline in the short term.
Firstly, we assume that there is no significant change in the fundamentals of individual stocks and that the decline in stock prices is much greater than the decline in the overall index. Otherwise, there is no point in exploring it.
There may be many reasons that contribute to the decline in stock prices, but they can be summarized into only two types. One is that the company's fundamentals have encountered problems, causing holders to doubt the company's profit prospects. Another type is when there is a problem with the supply and demand relationship, resulting in an imbalance in the buying and selling ratio in the short term. Since we assume that there is no fundamental change, the reason can only be found in the supply-demand relationship. There are only two states before a stock price decline, namely an increase or consolidation. Below, we will analyze these two states in detail.
The first state is a rapid downward decline in stock price after consolidation.
If the limit down is blocked without quantity, it is entirely possible that Laozhuang has collapsed. This situation usually brings short-term opportunities, but one has to wait until the stock price drops to a reasonable level recognized by the market and a huge volume of transactions is released. This form will become increasingly rare in the future, so we will not focus on analyzing it.
If carrying quantity, pay full attention to the detail of "quantity". After a relatively long period of consolidation, in fact, there are very few profitable chips in the medium term, so it is doubtful that there are so many sell offs.
So many purchases are equally unbelievable. When the stock price is consolidating, there is no volume and trading is very light, but once it falls, it immediately continues to receive orders, which is not normal. We know that there are over a thousand individual stocks on the market now, and those rare and unpopular stocks with low trading volume will not attract the market when they first fall, so there is no need for a large number of market buying orders.
Since there are not a large number of buying and selling orders in the market, these quantities are non market orders, ultimately just directional trading between the main force and another large order. For example, if the main force is severely short of funds, they may find another buyer to lock in a portion of their position. As the lock up buyer is only willing to accept a lower price, the main force can only lower the stock price in order for the lock up buyer to take over. In order to make the books of the lock up holders look good and at the same time, the main force also has a certain amount of funds, so the stock price will rebound in the short term, at least returning to the original consolidation platform.
Of course, it is also possible that the main force's own reversal caused the stock price to fall. This phenomenon is relatively rare, and most of them are the main players who have a clear bearish view of the future market and find ways to escape in advance. The purpose of creating trading volume is to attract market buying. This strategy will ultimately fail due to the inability to attract market buying, so the main players are unlikely to adopt it. If there was a false upward breakthrough in the stock price before the decline, then this conclusion can be confirmed.
The second state is when the stock price rises for a period of time and then rapidly falls.
If the stock price is at a relative or even historical high, it poses great difficulties for analysis and judgment due to the large number of profit chips and unclear costs of the main force. In fact, this type of stock is not what short-term investors should pay attention to, so we can ignore it.
If the stock price is pulled up from a relatively low level, then this is the short-term variety that should be focused on.
Due to the fact that the stock price has been rising for some time, the rapidly declining trading volume is definitely not small. Do not expect a form of unlimited decline, at most it will only shrink relative to the previous increase in volume. After all, during the decline process, the main force will have much less opposing volume. Since the trading volume is relatively high, let's focus on it.
The price at which the trading volume mainly appears is the key detail for us to analyze this pattern. We can divide the price range of trading volume into two types: one appears at the bottom of the bearish candlestick, such as the limit down position, and the other appears in the upper half of the bearish candlestick near the top position.
What does the trading volume tell us when it appears at the bottom of the bearish candlestick? A small amount of truth is something we must remember. The rapid decline of the stock price to the bottom of the bearish candlestick indicates that there is little market buying. Previously, the stock price was mainly maintained by the main force, but now as long as the main force withdraws, the stock price will fall. Since the stock price did not experience a significant increase before this, the decline in the stock price itself will not be significant. But now we see that the stock price has quickly fallen to a lower level, indicating that it was intentionally done by the main force. The main force quickly lowered the stock price in order to undermine the confidence of investors, especially profitable investors. Therefore, it is normal to see significant selling at the bottom of the bearish candlestick. It is also because the stock price has risen for a period of time, so the market generally does not actively buy when the stock price has just started to decline. Even at the bottom of the bearish candlestick, the buy orders in the market will not be more than the sell orders. The stock price should continue to fall, or it should remain at the limit down price without quantity. But we didn't see this, so these large buy orders at the bottom of the bearish candlestick are key. There is only one answer, these big purchases come from the main force, who only hope to increase their chips at a lower price. The main force is still building warehouses, that's our conclusion. The main force referred to here can also be large buyers such as funds, and whether they are truly the main force still needs to be confirmed through other channels.
What does the trading volume tell us when it appears in the upper half of the bearish line? After a certain increase in stock price, according to the market's natural mentality of "chasing the rise and killing the fall", unless the stock price continues to rise, it is impossible to make such a large purchase when the decline is very small. Therefore, among these larger quantities, there must be a main force opposing the reversal. Why does the main force do this? This is something we need to pay attention to. Due to the final outcome being a decrease in price and a decrease in quantity, it can be considered as a suppression behavior by the main force after shipment. From a global perspective, although these volumes were relatively large on that day, it was still impossible for the main force to completely withdraw, and the stock price continued to fall without any volume, indicating that the main force is not afraid of the stock price falling, and it is even possible that the main force intentionally caused the stock price to fall.
The conclusion is that the main force is implementing partial short selling and liquidation plans. Once the stock price falls back to a certain level, the main force will inevitably replenish and the stock price will rebound.
