Chapter Eleven: The King of Indicators — MACD

April 3rd, Friday.

After yesterday’s volatile dip-buying, Zhang Yang was now ready to execute T+0 trading strategies. During the pre-market auction, when Chang’an Automobile dipped by 1.2%, he once again chose to invest 100,000 in simulated funds.

He had reanalyzed Chang’an Automobile last night from policy, technical, capital flow, and market sentiment perspectives. The overall trend still pointed upward.

Unfortunately, Lai Weijie contacted him too late; otherwise, Zhang Yang could have easily pocketed at least a 100% return by trading ST Xiaxin (which had been backdoor-listed by Xiamen Xiangyu).

In his previous experience, Zhang Yang had precisely captured ST Xiaxin’s consecutive limit-ups and earned the top return in his investment studies class.

Once he confirmed the upward trend in Chang’an Automobile, Zhang Yang’s approach became straightforward—he would continuously make positive T trades to profit.

At exactly 10 a.m., the banking and securities sectors kept sliding down, dragging the broader market with them.

Zhang Yang was in no rush to buy; his funds were running low, so caution was paramount.

The market’s intraday line moved bit by bit as his gaze fixed intently on the MACD—the Moving Average Convergence Divergence indicator—below.

MACD is a fundamental technical analysis tool, often hailed by investors as the “king of indicators.”

Why so?

Because it provides a wealth of real-time market information—and that real-time aspect is crucial.

Simply put, it resembles a minute-by-minute version of the daily chart, except it lacks the 5-day, 10-day, and 20-day moving averages. Instead, it comprises the zero axis, histogram bars, the DIF line (difference line), and the DEA line (signal line).

A common warning sign is a bearish divergence: when the stock price hits a new high, but the MACD’s DIF line and histogram fail to match that peak. This often signals a market top and a possible reversal.

...

“The declining histogram volume shrinks, the DIF line trends sideways, banking sector forms a V-shaped pullback...”

“Tap tap tap—”

Zhang Yang’s eyes scanned the market swiftly as his mouse clicked rapidly.

Real-time information from the A-share market flowed directly into his brain, rapidly processed and synthesized.

At 10:14 a.m., as the banking sector and the broader market dipped again, Zhang Yang didn’t hesitate; he immediately invested all his remaining 200,000.

Within just ten minutes after buying, the banking sector traced a W-shaped pattern, while securities carved a V-shaped recovery.

The banking sector lifted the overall market; securities propelled the small- and mid-cap stocks upward, and the A-share market resumed its upward trajectory.

By 11:21 a.m., the upward momentum waned. The DIF line turned downward twice, signaling an intraday top. Zhang Yang decisively sold all his 200,000 shares in Jianghuai Automobile, as well as the 500,000 shares of Chang’an Automobile he had bought yesterday.

Following his sell-off, the DIF line and intraday line moved upward again, and at the 11:30 a.m. close, the market broke through previous highs.

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Yet, no trace of regret showed on Zhang Yang’s face. There’s an old saying in the stock market: “Late-day rallies are either cunning or treacherous.”

Why?

Because the closing period is when market funds relax.

A late-day ambush is like a surprise night attack on the enemy’s camp, indicating that the bulls’ direct momentum has exhausted and they are resorting to desperate sneak attacks.

This applies not only to the afternoon close but also the morning close.

Of course, no indicator is ever completely accurate.

All market indicators must be interpreted in the context of ever-changing market conditions. Zhang Yang noticed that the banking sector’s trend seemed weak today, apparently entering a corrective phase.

What he wasn’t sure about was whether a new leading sector would emerge to take over.

...

While Zhang Yang sought stability, the investment studies students, one more aggressive than the next, had the “Investment 122 Elite” chat group buzzing as the morning session ended.

[Zhao Zhenyu]: How can Baosteel open high and close low with so many positive news? It even surged on volume a few days ago. I don’t get it.

[Ming Qixuan]: Chasing breakouts is the way to go. I bought Gaochun Ceramics yesterday; it’s up 10% today. Feels great.

[Yin Shichang]: You’re lucky. I bought ST Zhufeng hoping for an oversold V-shaped rebound but got hit with a 10% silent loss.

[Wang Liu]: ST Zhufeng is controlled by the speculator Zhao Laoge. He cleared out a while ago. You’re just a bag holder.

[Yin Shichang]: Damn, I heard other speculators got involved, didn’t expect it to be a market sham.

[Dong Lulu]: Maybe it’s true; they might just be shaking out positions.

While Zhang Yang grabbed lunch in the cafeteria, he pulled out his Nokia 3250 to check the flurry of messages in the QQ group.

Many had suffered heavy losses this morning, especially those chasing limit-ups—eight people had lost 10%, though their exact investments were unknown.

Surprisingly, He Jing had gained 2% again, also opting to trade Chang’an Automobile.

“This first place, looks like she’s solid,” Zhang Yang muttered to himself.

If the trend continued, He Jing might become the first student to break a 50% return.

Don’t underestimate 50%—Buffett’s annual total returns are about 25%, so that’s double his.

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However, it wouldn’t be fair to say He Jing was better than Buffett, since they were trading with simulated funds that didn’t affect the real market.

With real funds, if you swept up a million worth of shares, the market makers would detect it immediately and might counterattack.

Real trading is often a hundred times more perilous than simulation.

Buffett’s ability to achieve 25% annual returns in real trading proves his “Oracle of Omaha” reputation is no exaggeration.

“Didn’t trade this morning?”

Zhang Yang glanced sideways. It was He Jing speaking. Today she wore a slightly tight white short-sleeve shirt and loose ripped jeans, still flaunting her figure.

Next to her stood Xu Zhiruo and two other girls Zhang Yang recognized but couldn’t name—likely roommates.

“Zhang the academic ace, you’re not really going to forfeit, are you? Or is there some insider info on Baosteel we don’t know?” Xu Zhiruo inquired.

Influenced by Zhang Yang, many investment students held Baosteel, each with about 20% allocation, believing Zhang might have insider info and thus hesitated to trade.

“No insider info. I’m writing a market research report—I might pursue a career as a financial analyst,” Zhang Yang lied, hoping to brush it off.

“I see,” Xu Zhiruo said, suddenly enlightened and somewhat naive: “If you become a top analyst, don’t forget us—at least give us an alumni discount.”

“Looks like economics and accounting folks are out of luck. Our investment whiz is crossing over and dealing them a heavy blow!”

“Haha, other finance majors must be shaking in their boots!”

At Hudou University’s School of Finance, majors included finance, insurance, investment, financial engineering, credit management, and leasing. Many students aimed to become analysts as their first career.

As for accounting and economics, even more students went into analysis.

Zhang Yang, an investment prodigy switching to financial analysis, was definitely a kind of dimensionality reduction strike.

He Jing gave a barely perceptible smile and added, “It’s getting late; we should head back to trade before 1 p.m. Won’t keep you from your analyst work, Zhang Da.”

“Good luck, Analyst Zhang Da.”

“I’ve subscribed to all your updates, Analyst Zhang Da.”

“Looking forward to your next market report.”

Amid their teasing laughter, Zhang Yang responded calmly, “No problem, the next report will be ready soon.”