Based on Lao Niu (θη), Complete Guide to Reading Charts (ηηζΉζ³δΈζε·§δΈζ¬ι)
Lao Niu's Complete Guide to Reading Charts is a comprehensive manual for real-time chart reading (ηη, literally "watching the board") in the Chinese stock market. Unlike books focused on end-of-day technical analysis, this book teaches the skills needed to interpret market activity as it happens β reading the order book, interpreting time-and-sales data, understanding intraday price-volume patterns, and synthesizing market-wide information into actionable conclusions.
Chart reading (ηη) is a distinct skill from technical analysis. Technical analysis works with historical data to identify patterns and probabilities. Chart reading works with live data to understand what is happening in the market right now β who is buying, who is selling, where is the balance of power, and what is the likely next move.
The A-share market has several characteristics that make real-time chart reading especially valuable:
| Tool | What It Reveals | Primary Use |
|---|---|---|
| Intraday price chart | Price trend and momentum within the day | Direction and strength |
| Bid-ask book (Level 2) | Pending buy and sell orders | Supply/demand balance |
| Time-and-sales | Actual executed trades | Institutional activity detection |
| Volume bars | Trading intensity over time | Participation and conviction |
| Tick chart | Every price change | Ultra-short-term momentum |
| Market breadth | Advancing vs. declining stocks | Overall market health |
| Sector performance | Relative strength by sector | Money flow direction |
Effective chart reading begins before the 9:30 AM opening bell:
Lao Niu divides the trading day into three sessions with distinct characteristics:
Morning session (9:30-11:30):
Lunch break (11:30-13:00): No trading, but news can break. The afternoon opening can gap from the morning close.
Afternoon session (13:00-15:00):
Watch: Price-volume divergence, unusual order flow in the bid-ask book, sector rotation patterns, market breadth changes, limit-up board activity.
Ignore: Individual retail-sized trades, minor intraday wiggles without volume, social media rumors during trading hours, your own P&L (it creates emotional bias).
The intraday price line (εζΆηΊΏ) is the continuous plot of the stock's last trade price throughout the day. Lao Niu teaches reading this line relative to the VWAP (volume-weighted average price, displayed as the yellow line in most Chinese trading software):
V-reversal: Sharp morning sell-off followed by strong afternoon recovery. Often occurs when panic selling in the morning is absorbed by institutional buyers. Bullish for the next day if the close is near the day's high.
Inverted V: Strong morning rally followed by afternoon sell-off. Distribution pattern β smart money selling to retail buyers who are chasing the morning strength. Bearish for the next day.
Staircase up: Price rises in distinct steps with consolidation platforms at each level. Orderly buying by institutional investors. Very bullish pattern.
Staircase down: Opposite of above. Orderly liquidation. Very bearish.
Flat line at limit-up: Stock reaches +10% and stays locked. Strong demand overwhelms all supply. Extremely bullish β look for continuation the next day.
The pattern of volume within the day reveals intent:
Chinese trading software typically displays 5 levels of bid and ask (δΉ°δΊ/εδΊ). Lao Niu provides detailed interpretation:
Large sell orders stacked above: A visible "wall" of sell orders at a specific price. This can be genuine resistance (a large holder liquidating) or a bluff (placed to scare buyers, then withdrawn when price approaches β a manipulation technique).
Large buy orders stacked below: A "floor" of buy support. Again, can be genuine (institutional accumulation) or bluff (propping the price while distributing at higher levels).
The Fake Wall: A large sell order appears at a price just above current levels. Retail traders see this as resistance and sell. The manipulator then withdraws the sell wall and buys at the lower price. Lao Niu teaches: watch whether the wall is actually traded or consistently withdrawn as price approaches.
The Layering Trick: Multiple small orders stacked to create the appearance of deep supply or demand. Each individual order is small enough to avoid detection as unusual, but collectively they create a misleading impression.
Spoofing Patterns: Large orders that appear and disappear rapidly. If a large bid keeps appearing and vanishing within seconds, it may be attempting to create a false impression of demand.
PSEUDOCODE: Order Imbalance Analysis
ββββββββββββββββββββββββββββββββββββββ
function calculate_order_imbalance(bid_levels, ask_levels):
total_bid_volume = sum(bid.volume for bid in bid_levels)
total_ask_volume = sum(ask.volume for ask in ask_levels)
imbalance = (total_bid_volume - total_ask_volume) / (total_bid_volume + total_ask_volume)
// imbalance ranges from -1 (all supply) to +1 (all demand)
if imbalance > 0.3:
return "Strong buying pressure β demand exceeds supply"
elif imbalance > 0.1:
return "Moderate buying pressure"
elif imbalance < -0.3:
return "Strong selling pressure β supply exceeds demand"
elif imbalance < -0.1:
return "Moderate selling pressure"
else:
return "Balanced β no clear directional bias"
The time-and-sales data (also called the "tape") shows every executed trade: time, price, volume, and whether the trade was initiated by a buyer or seller. This is the most granular data available to retail traders.
Institutional orders are distinguishable from retail orders by:
Aggressive buying: A rapid sequence of buy-initiated trades at progressively higher prices. Each trade is lifting the ask. This indicates urgent demand.
Passive accumulation: Steady buying at the bid price without moving the market up. The buyer is patient and does not want to reveal size. Shows up as constant bid-side volume without price advance.
Distribution: Large sell-initiated trades interspersed with small buy-initiated trades. The large seller is feeding stock to small buyers. Price may not fall immediately because the seller manages the flow, but supply is overwhelming demand.
Capitulation: A sudden burst of very large sell-initiated trades on high volume, often triggering the stock to approach its daily limit down. This panic selling often marks short-term bottoms.
Volume is the most important secondary indicator in chart reading. Lao Niu's volume principles:
The most important volume signal is divergence from price:
Lao Niu recommends using relative volume (current volume / average volume) rather than absolute volume:
| Relative Volume | Interpretation |
|---|---|
| < 0.5 | Extremely quiet. No institutional participation. |
| 0.5 - 1.0 | Normal activity. No unusual interest. |
| 1.0 - 2.0 | Above average. Something is happening. Monitor closely. |
| 2.0 - 3.0 | Significant activity. Likely institutional involvement. |
| 3.0 - 5.0 | Major event. Large-scale buying or selling. |
| > 5.0 | Climactic. Possible exhaustion. Watch for reversal. |
Unique to Chinese market analysis, the turnover rate (volume / free float shares) is a key metric:
Lao Niu covers the standard candlestick patterns with A-share specific context:
Long lower shadow (δΈε½±ηΊΏ): Price dropped significantly during the day but was bought back. The longer the lower shadow relative to the body, the stronger the buying response. In A-shares, a long lower shadow near a support level is a reliable buying signal.
Long upper shadow (δΈε½±ηΊΏ): Price rose but was sold back. Selling pressure above. After an extended uptrend, a long upper shadow on high volume is a warning.
Doji at highs: Indecision after an uptrend. Often the first sign of a top. More reliable if accompanied by above-average volume.
Engulfing pattern: A candle that completely engulfs the previous day's body. Bullish engulfing at lows with volume expansion is one of the most reliable reversal signals.
Morning star (ζ©ζ¨δΉζ): Three-day pattern β long red candle, small body (star), long green candle. Bullish reversal. Best when the star gaps down from the first candle.
Evening star (ι»ζδΉζ): Opposite of morning star. Bearish reversal at tops.
Three soldiers (ηΊ’δΈε ΅): Three consecutive bullish candles with higher closes. Bullish continuation or reversal pattern. Each candle should close near its high.
Three crows (δΈεͺδΉιΈ¦): Three consecutive bearish candles. Bearish continuation.
Due to the 10% daily price limit:
The ratio of advancing to declining stocks provides a measure of market health:
Unique to A-shares, the daily count of stocks hitting their price limits is a powerful sentiment indicator:
Net money flow into the market, broken by order size:
Lao Niu describes the typical A-share sector rotation pattern:
Monitor sector performance rankings throughout the day:
PSEUDOCODE: Sector Rotation Monitor
βββββββββββββββββββββββββββββββββββββ
function monitor_rotation():
sectors = get_all_sector_returns(today)
prev_leaders = get_top_5_sectors(yesterday)
current_leaders = get_top_5_sectors(today)
overlap = intersection(prev_leaders, current_leaders)
if len(overlap) >= 4:
rotation_signal = "Stable leadership β existing trend continues"
elif len(overlap) <= 1:
rotation_signal = "Major rotation underway β reassess positions"
else:
rotation_signal = "Moderate rotation β monitor closely"
// Check defensive vs. offensive leadership
defensive = ["utilities", "consumer_staples", "healthcare"]
offensive = ["tech", "consumer_discretionary", "materials"]
if majority_of(current_leaders) in defensive:
risk_signal = "Risk-off β market becoming defensive"
elif majority_of(current_leaders) in offensive:
risk_signal = "Risk-on β market favoring growth"
return rotation_signal, risk_signal
The A-share opening call auction is a critical information window:
The closing call auction determines the final closing price:
If the auction volume (ιεη«δ»·ι) is significantly above normal, it signals heightened interest in the stock. Combined with price direction, this provides an early read on the day's likely direction.
When a stock hits +10%:
The CSI 300 index futures (IF contracts) often lead the cash market:
Monitor correlations between:
Pre-market (8:30-9:15):
Opening auction (9:15-9:30): 4. Monitor auction prices for watchlist stocks 5. Note any unusual auction volume or price gaps
Morning session (9:30-11:30): 6. Track intraday trend vs. VWAP for key stocks 7. Monitor market breadth and sector rotation 8. Execute any planned entries/exits based on intraday confirmation
Afternoon session (13:00-15:00): 9. Reassess morning moves β continuation or reversal? 10. Monitor closing auction for institutional positioning signals 11. Note end-of-day breadth and sector leadership for evening analysis
Post-market (15:00-16:00): 12. Record observations and trade journal 13. Run end-of-day scans for next-day candidates 14. Review overall market internals for macro context
"Chart reading is not about predicting the future. It is about understanding the present β who is buying, who is selling, and who is in control."
"The bid-ask book tells you what people want to do. The time-and-sales tells you what people are actually doing. When the two diverge, trust the tape."
"Volume is the heartbeat of the market. Learn to hear its rhythm, and you will know when the market is healthy and when it is sick."
"The opening auction is the market's first breath of the day. A deep breath signals energy. A shallow breath signals lethargy."
"In A-shares, the closing price is king. Because of T+1, what happens in the last 30 minutes carries more weight than the rest of the day combined."
"Market breadth is the truth that the index tries to hide. An index can rise on the back of five large-cap stocks while 3,000 stocks decline. Breadth exposes this deception."
"Sector rotation is the market's way of telling you where money is moving. Follow the money, not the headlines."
"The chart reader's greatest enemy is not the market. It is the desire to trade. Most of the time, the correct action is to watch and wait."