Recently, I revisited Chan Theory in depth and truly understood why so many people admire this system. To put it simply, Chan Theory transforms market chaos into an orderly rule-based system, allowing you to see every pulse of price movement clearly.

The core is actually one sentence: the trend will eventually end perfectly. It sounds simple, but the underlying logic can solve all trading problems in free markets. Uptrends must end, downtrends must end, which means every trend can be precisely located. Once you understand this, you'll realize why some can consistently profit in the market while others are always trapped.

The most ingenious part of Chan Theory is its classification philosophy. The concepts of levels, central points, and trend types run throughout. The level determines your operational space—just like you can't use the same cycle to trade with 1 million versus 10k in capital. The higher level sets the direction, while the lower levels seek opportunities. This is the correct trading mindset. Many lose money because they ignore levels, blindly fixated on minute charts, only to be slapped in the face by the larger daily trend.

The central point is the heart of Chan Theory. Simply put, at least three consecutive sub-level trend types overlapping form a central point. Consolidation is just one central point, while a trend involves two or more same-direction central points. This definition may seem complex, but in practice, a quick glance can reveal it. True trends won't overlap between central points; this is the only standard to judge genuine versus false trends.

Divergence is the only basis for changing trend judgment. Low-level divergence is a buy signal; high-level divergence is a sell signal. But there's a trap—many see the MACD histogram shrinking and think divergence is happening, only to be repeatedly shaken out. Genuine divergence requires observing the state of the yellow and white lines, comparing their strength, and confirming whether the trend type is trending or consolidating. An experienced tip in Chan Theory: when two adjacent segments within a wave show divergence in the yellow and white lines, that’s a real divergence signal.

Pattern formation is the most basic operational unit. Composed of three candlesticks: the middle one is the highest or lowest when at the top or bottom, respectively. But whether a new stroke (line) forms after a pattern is the key. If support holds, it's a standard pattern formation, which will extend into a new stroke; if support fails, it's an intermediate pattern, and the trend will continue to fluctuate. This also needs to be combined with divergence conditions of smaller levels—divergence often indicates an intermediate, while no divergence suggests a new stroke will form.

On the operational level, Chan Theory provides clear definitions of buy and sell points. The first buy point is the starting point after a previous downtrend completes; the second is the low point during a pullback to the central point; the third is the low after the central point expands. Correspondingly, there are three levels of sell points. The key is to choose based on your trading level—don't mix them up. If you're trading on a 30-minute level, use 5-minute and 1-minute pattern formations to precisely locate buy and sell points. This minimizes costs and keeps risks manageable.

Many people struggle to learn Chan Theory because they haven't clarified the level issue. The theory itself doesn't define levels because levels are determined by capital, personality, and risk tolerance. Obviously, 1 million in capital can't trade on minute charts as freely as 10k. This is common sense. In a weak market, a 30% rise should alert you to potential distribution by the main players—don't believe in any "value investing" nonsense; cost is always the key.

The application of moving averages is also quite particular. The crossover of the 5-day and 10-day moving averages forms a simple buy-sell system. When the short-term MA is above the long-term MA, it's a bull market; when below, it's a bear market. Whether the crossover is a continuation or a reversal depends on the "kiss" type. A "kiss" of the lips indicates a strong trend, a "kiss" of the mouth suggests an average trend, and a "wet kiss" signals a genuine reversal. This system is simple and effective, especially in assisting with divergence judgments.

Combining multiple levels is an advanced technique. The weekly and daily charts form a basic combination, and adding the 30-minute chart creates a complete triple structure. Observing the state of the weekly and daily charts helps assess current trading risk. If both are in a downtrend, risk is highest—top traders avoid trading. Conversely, if both are in an uptrend, it's the safest zone for trading.

Ultimately, Chan Theory builds trading on a rigorous logical system, not on greed or fear-driven speculation. Every market fluctuation follows these rules. The key is patience in learning and practicing. Once you truly grasp the essence of Chan Theory, you'll find the market can be so clear, and trading can be so rational. That’s why I keep studying this system deeply—because it has truly changed my understanding of the market.