Mastering Chinese Trading Strategy: A Deep Dive into Philosophy, Methodology, and Practical Application Beyond the Western Model
It is time to expand our horizons and move beyond the methodology that has dominated the trading world for decades: the Traditional Western School. This approach, originally developed for stock trading in the US and reliant on indicators suited to that environment, is often insufficient for the complexities of modern Forex, metals, and commodity markets.
This article offers an in-depth and authoritative exploration of the Chinese Trading Strategy, viewing it not just as a technique, but as a complete philosophy (derived from the principles of "Zen and Wu") designed to ensure consistency and balance in profit generation.
Part I: Breaking Misconceptions – What Chinese Trading Is Not
The common perception of Chinese traders—a population exceeding 150 million—is that they are merely aggressive scalpers, overly reliant on automated trading (EAs), traditional technical indicators, and high-speed entries and exits.
The reality is completely different. The professional Chinese school rejects this frenetic approach, adopting a deeper, more philosophical methodology that focuses purely on the trend and the market’s underlying energy. If you are searching for the best trading strategy, the answer might lie in the East.
Part II: The Chinese Methodology – The World’s Best Trend Traders
The professional Chinese trader is the undisputed master of Trend Following. Their methodology is not concerned with trading counter-trend corrections, but rather with identifying the main "current" and riding it with maximum efficiency.
1. Philosophical Foundations: Beyond Support and Resistance
Unlike Western traders who fixate on specific price levels, the Chinese approach emphasizes dynamic movement.
- Rejection of Traditional Support and Resistance: Instead of relying on static levels, the focus is on the Foundational Candles of the Trend and the internal trend lines they create. This is because standard Support and Resistance zones are often broken. The Chinese trader focuses on zones created by the price itself within the ongoing trend.
- Exclusive Trend Following: Drawing upon the Zen and Wu philosophy, the objective is to maximize the exploitation of the strongest and longest waves, ensuring effective exit management while avoiding attempts to trade reversals.
2. The Tools: Foundational Candles and Three Key Patterns
While Western traders use dozens of indicators, the Chinese approach streamlines its tools:
- Foundational Candles of the Trend: This is a core concept—specific candles that mark the true points of origin and support for the current movement, acting as the key to identifying optimal entry and exit points.
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Only Three Main Patterns: The Chinese school relies on just three simple yet powerful chart patterns:
- The Entry Confirmation Pattern: Ensures that the trade entry occurs at the precise, optimal moment within the trend.
- The Trend Strength/Weakness Pattern: Used for calculating and predicting whether the trend will continue strongly or begin to fade.
- The Early Exit Warning Pattern: Crucially important; this pattern signals the need to exit the trade and take profit before a significant corrective wave begins. The goal: securing profits and re-entering later from better levels, creating a "waterfall of profits." This pattern is the secret to balanced trading.
Part III: Practical Application – The Weekly Routine and Balanced Energy
Chinese trading is not a spontaneous decision; it is a balanced process that begins before the markets open, known as the "Sunday Ritual" or "Weekly Homework."
- The Sunday Ritual: The trader maps and analyzes the charts for chosen assets (e.g., the Gold strategy). They identify the Foundational Candles for buying and selling based on the previous week’s action. The purpose is to establish the weekly roadmap and potential entry/exit points through deep technical analysis.
- Frame Determination: Based on the weekly analysis, a single time frame (e.g., the 15-minute or 5-minute frame) is selected and used exclusively for trading throughout the week. This ensures absolute focus and avoids the "noise" of switching between different time frames.
- Calculated Forecasting: The trader uses the strategy to calculate and predict the target price level where the asset should conclude its movement (e.g., predicting where Gold will end the month). This allows for trading with a forward-looking, long-term vision, which is why they can issue long-term trade signals.
- Spiritual Practice: Before executing any trade, the trader engages in a special "ritual" (meditation or internal balancing) as part of a sacred process. This ensures mental balance and composure, guaranteeing that decisions are based on clear analysis rather than emotion.
Part IV: Risk Management and Consistent Profit – The Consistency Model
The goal of this school is not to achieve massive, inconsistent profit spikes, but to achieve consistency and stability in earnings.
- Flexible Take Profit: The Chinese trader sets a preliminary take-profit level but does not adhere strictly to it. They wait for the Early Exit Warning Pattern to appear. Once it signals, they close the position and take profit. The advantage: This protects profits from violent corrections, ensuring the trader can re-enter from better levels within the overall trend.
- Information Insulation: After completing the weekly homework, the trader becomes unconcerned with economic news or data releases. The reason: The analytical and calculated weekly vision prioritizes internal price action over short-term external events. This is the foundation of successful trading away from market noise.
Final Conclusion: Why Adopt This School?
If you suffer from inconsistent profits, feel distracted by too many indicators, or exit trades too late after profits have eroded, the Chinese Trading Strategy offers:
- Balance and Calm: Consistent, similar daily profits.
- Depth: Understanding the trend through Foundational Candles rather than superficial lines.
- Protection: An early warning system to take profits and shield capital.
This is a trading style that emphasizes Mindset over Technique, which is what truly separates the professional trader from the novice.