Brother Cat Special Course (Six): The Four Defensive Lines of Stock Trading

Weekend trip to Wuxi Lingshan to offer incense. In the inner chamber at the foot of the Great Buddha, there is a mantra. Let’s put it on the homepage image because it explains how to achieve Nirvana and what Nirvana truly is. [Taogu Ba]
Wishing all friends still on the path to recover their trading capital a rebirth through Nirvana.

The fire of anger has been extinguished,
The fire of greed has been extinguished,
The fire of ignorance has been extinguished,
This is Nirvana!

Main text begins.

Today I want to briefly talk about the issue of defense in trading.

There are four lines of defense in total.

First line of defense — Expectation Management.
Yesterday, the market broadly rose, and most people were very excited, talking about a second wave of aerospace stocks. Your first instinct should be to stay clear-headed and set objective expectations.
For example, my psychological expectation during yesterday’s trading was “unsustainable.”

That evening, I also reminded myself to be “more rational tomorrow.”

In yesterday’s post, I also emphasized the “weak strength amidst strong” in commercial aerospace.

And pointed out that the probability of a strong recovery the next day was significantly reduced.

If your expectations are not set correctly, your mindset might encourage you to bet on a long position, which could lead to getting trapped.

Second line of defense — Trading Skills.
After today’s opening, I gave everyone a hint that today’s trend is “weak recovery with divergence.”

How to trade during a weak recovery? I already wrote in yesterday’s post: don’t enter the market, wait until the weak recovery turns into divergence, then buy strong stocks at the close. Buy strong stocks at the close. Buy strong stocks at the close.

Once you recognize that a sector is undergoing a weak recovery, you can turn off your computer and go play. Reboot at 14:50 to see which stocks you want to buy.
At noon, I reminded again to wait until the close — I was worried some brothers might jump in early and get trapped. I know you all too well — just afraid of missing out.

If you don’t follow this trading approach, you’re likely to get trapped.
If you do follow this approach, your profit and loss for the day will break even, and after buying at the close, you just wait for the next day’s weak recovery to push higher and sell, or hold during strong recovery, and exit if the situation turns bad.

Third line of defense — Aesthetic Judgment.
Yesterday’s post specifically mentioned that if you don’t know how to pick leading stocks or handle divergence, then buy low in stocks like Aerospace Development, Julli, or Tongyu.

Most people won’t go for the top boards in Julli, so not doing that is fine. The other two, they haven’t been involved in the water below all day. Still have expectations for tomorrow.

On the topic of aesthetic judgment, let’s talk about other sectors.

In AI applications, today, despite the negative news about Yuanbao, Zhejiang Wenlian, which was mentioned, seems more resilient than other hot stocks, and it even gave a +6 exit point at the open.

Chemicals like Hongbaoli, which broke through the daily limit, are still okay.

Space photovoltaic stocks like Junda and GS are also good; GS even hit the daily limit again.

Fourth line of defense — Position Size.
During yesterday’s market peak, even when holding a large position, restraint was necessary.

Yesterday’s post said, “Keep at least half your position because most sectors are likely to continue rotating.”

So, position size is also one of the ways to protect your account.

To summarize, the four lines of defense in stock trading are: Expectation Management, Trading Skills, Aesthetic Judgment, and Position Size Management.
Actually, I have clear written tips on all four points. You’ve seen these words before, but sometimes your brain just ignores them.
Why? Because of mindset issues. Fear of missing out, impatience, missing the close.
But if you think about it carefully, even if you do miss out, so what? You didn’t lose money. Just look for another opportunity — the stock market opens every day.