My First Stock Trading Book (我的第一本炒股书) — Complete Implementation Specification

Author: Yang Jin (杨金) Original Language: Chinese (Simplified) Market Focus: A-shares (Shanghai & Shenzhen Stock Exchanges) Target Audience: Complete beginners to stock trading in China

Table of Contents

  1. Core Philosophy

  2. Understanding the Chinese Stock Market

  3. Account Setup and Getting Started

  4. Order Types and Execution

  5. Reading Stock Quotes and Market Data

  6. Basic Candlestick Chart Reading

  7. Essential Technical Indicators

  8. Moving Average Fundamentals

  9. Volume Analysis Basics

  10. Introduction to Fundamental Analysis

  11. Stock Selection for Beginners

  12. Risk Management Essentials

  13. Position Sizing and Portfolio Construction

  14. Trading Psychology

  15. Common Beginner Mistakes

  16. Key Quotes and Principles

1. Core Philosophy

Yang Jin writes for the absolute beginner — someone who has never bought a stock and does not know the difference between the Shanghai and Shenzhen exchanges. The philosophy is grounded in safety and learning:

2. Understanding the Chinese Stock Market

2.1 Market Structure

Exchange Location Board Stock Code Prefix
Shanghai (SSE) Shanghai Main Board 600xxx, 601xxx, 603xxx
Shenzhen (SZSE) Shenzhen Main Board 000xxx, 001xxx
Shenzhen (SZSE) Shenzhen SME Board (中小板) 002xxx
Shenzhen (SZSE) Shenzhen ChiNext (创业板) 300xxx
Shanghai (SSE) Shanghai STAR Market (科创板) 688xxx

2.2 Trading Hours

2.3 Price Limits

2.4 Settlement Rules

2.5 Trading Units

3. Account Setup and Getting Started

3.1 Choosing a Brokerage

Key criteria for beginners:

3.2 Account Opening Process

  1. Choose a brokerage firm (证券公司)
  2. Prepare: national ID card (身份证), bank card, mobile phone
  3. Download the broker's app or visit a branch office
  4. Complete identity verification (video call or in-person)
  5. Set trading password and fund transfer password
  6. Link a bank account for fund transfers
  7. Deposit initial capital

3.3 Recommended Starting Capital

3.4 Paper Trading First

Yang Jin strongly recommends 1-3 months of paper trading (模拟交易) before committing real money. Most brokerages offer simulation modes.

4. Order Types and Execution

4.1 Limit Order (限价委托)

4.2 Market Order (市价委托)

4.3 Auction Orders

4.4 Order Priority

Orders are matched by: (1) Price priority, (2) Time priority

Buy orders: higher price has priority
Sell orders: lower price has priority
At the same price: earlier order has priority

4.5 Practical Tips for Order Entry

5. Reading Stock Quotes and Market Data

5.1 The Quote Screen

A typical A-share quote screen shows:

Field Chinese Description
Current price 现价 Last traded price
Change 涨跌 Change in yuan from prior close
Change % 涨跌幅 Percentage change from prior close
Open 开盘 Opening price
High 最高 Session high
Low 最低 Session low
Volume 成交量 Shares traded (in lots of 100)
Turnover 成交额 Value traded (in yuan)
Bid 买一/二/三/四/五 Top 5 bid prices and sizes
Ask 卖一/二/三/四/五 Top 5 ask prices and sizes
Turnover rate 换手率 Volume / free float shares
PE ratio 市盈率 Price-to-earnings ratio
Market cap 总市值 Total market capitalization

5.2 Understanding the Bid-Ask Spread

Ask 5: 10.05  (200 lots)
Ask 4: 10.04  (150 lots)
Ask 3: 10.03  (500 lots)
Ask 2: 10.02  (300 lots)
Ask 1: 10.01  (100 lots)  <- lowest ask
-------------------------------
Bid 1: 10.00  (200 lots)  <- highest bid
Bid 2:  9.99  (400 lots)
Bid 3:  9.98  (300 lots)
Bid 4:  9.97  (100 lots)
Bid 5:  9.96  (250 lots)

Spread = Ask 1 - Bid 1 = 10.01 - 10.00 = 0.01 yuan (1 tick)

A narrow spread indicates good liquidity; a wide spread indicates illiquidity.

5.3 Key Metrics for Beginners

6. Basic Candlestick Chart Reading

6.1 Anatomy of a Candlestick

    |        <- Upper shadow (上影线)
  -----
  |   |      <- Body (实体): Red/hollow = bullish (close > open)
  |   |                       Green/filled = bearish (close < open)
  -----
    |        <- Lower shadow (下影线)

Note: In Chinese markets, red = up (bullish) and green = down (bearish). This is opposite to Western convention.

6.2 Basic Candlestick Types

Name Chinese Description Implication
Large red candle 大阳线 Large body, small shadows, close >> open Strong buying
Large green candle 大阴线 Large body, small shadows, close << open Strong selling
Doji 十字星 Open equals close, shadows present Indecision
Hammer 锤头线 Small body at top, long lower shadow Potential reversal (bullish)
Shooting star 射击之星 Small body at bottom, long upper shadow Potential reversal (bearish)
Small body 小阳线/小阴线 Tiny body, either direction Indecision

6.3 Reading a Daily Chart

For beginners, Yang Jin recommends focusing on the daily chart:

  1. Identify the overall direction: Is the stock going up, down, or sideways?
  2. Look for patterns of higher highs and higher lows (uptrend) or lower highs and lower lows (downtrend)
  3. Note where the stock is relative to recent highs and lows
  4. Do not over-interpret individual candles — look at the big picture

7. Essential Technical Indicators

7.1 MACD (Moving Average Convergence Divergence)

7.2 KDJ (Stochastic Oscillator, Chinese variant)

7.3 RSI (Relative Strength Index)

7.4 Bollinger Bands (布林带)

8. Moving Average Fundamentals

8.1 Key Moving Averages

Period Chinese Name Use
5-day 5日均线 Short-term trend
10-day 10日均线 Short-term support/resistance
20-day 20日均线 Medium-term trend
60-day 60日均线 Intermediate trend (quarterly line)
120-day 120日均线 Half-year trend (半年线)
250-day 250日均线 Long-term trend (年线)

8.2 Golden Cross and Death Cross

8.3 Moving Average as Support and Resistance

In an uptrend:
  Price pulls back to rising MA -> potential buying opportunity
  Key support MAs: 20-day, 60-day

In a downtrend:
  Price bounces up to declining MA -> potential selling point
  Key resistance MAs: 20-day, 60-day

8.4 Beginner MA Strategy

Yang Jin's simple MA strategy for beginners:

  1. Only consider buying stocks that are above their 20-day MA
  2. Only consider buying stocks where the 20-day MA is rising
  3. If the stock closes below the 20-day MA, exit the position
  4. This simple rule keeps beginners on the right side of the trend

9. Volume Analysis Basics

9.1 Volume Fundamentals

9.2 Volume-Price Relationship Rules

Rule 1: Price up + Volume up     = Healthy uptrend (continue holding)
Rule 2: Price up + Volume down   = Rally losing steam (be cautious)
Rule 3: Price down + Volume up   = Strong selling (exit or avoid)
Rule 4: Price down + Volume down = Selling exhausted (watch for reversal)

9.3 Volume Spikes

9.4 Turnover Rate Guide

Turnover Rate Meaning
< 1% Very quiet, low interest
1-3% Normal activity
3-7% Active, worth watching
7-10% Very active, potentially volatile
> 10% Extremely active — could be opportunity or danger

10. Introduction to Fundamental Analysis

10.1 Key Financial Metrics

Metric Formula What It Tells You
PE Ratio Price / EPS How expensive the stock is relative to earnings
PB Ratio Price / Book Value per Share How expensive relative to net assets
ROE Net Income / Shareholders' Equity How efficiently the company uses equity
Revenue Growth (Current Revenue - Prior) / Prior Business growth rate
Net Profit Margin Net Income / Revenue Profitability
Debt-to-Equity Total Debt / Equity Financial leverage and risk

10.2 Where to Find Financial Data

10.3 Basic Fundamental Screening for Beginners

PE Ratio: 10 - 30 (not too cheap/distressed, not too expensive)
PB Ratio: 1 - 5
ROE: > 10% (competent management)
Revenue Growth: > 5% (growing business)
Debt-to-Equity: < 1.0 (not over-leveraged)
Consecutive profitable quarters: >= 4

10.4 Industry Comparison

Always compare fundamental metrics within the same industry. A PE of 30 might be cheap for a technology stock but expensive for a utility.

11. Stock Selection for Beginners

11.1 Characteristics of Beginner-Friendly Stocks

11.2 Sectors for Beginners

Suitable Avoid Initially
Consumer staples (食品饮料) Biotech / Pharma R&D
Banking and Insurance Small-cap tech
Utilities ST / *ST stocks
Large-cap technology ChiNext volatile stocks
Infrastructure Concept-only stocks (no real business)

11.3 Simple Selection Process

Step 1: Start with CSI 300 index components (large, liquid, quality)
Step 2: Filter for PE < 25 and ROE > 12%
Step 3: Check that price is above the 60-day MA (uptrend)
Step 4: Read a brief company description — do you understand the business?
Step 5: From remaining stocks, pick 3-5 that interest you
Step 6: Monitor them for 1-2 weeks before buying

12. Risk Management Essentials

12.1 The 3% Rule

Never risk more than 3% of your total capital on a single trade. This means:

If your capital is 50,000 RMB:
Maximum loss per trade = 50,000 * 0.03 = 1,500 RMB

If you buy a stock at 10.00 with a stop at 9.50 (5% risk per share):
Maximum position = 1,500 / 0.50 = 3,000 shares
Position value = 3,000 * 10.00 = 30,000 RMB (60% of capital)

If the stop is at 9.00 (10% risk per share):
Maximum position = 1,500 / 1.00 = 1,500 shares
Position value = 1,500 * 10.00 = 15,000 RMB (30% of capital)

12.2 Stop-Loss Discipline

12.3 Diversification Rules

12.4 Loss Limits

13. Position Sizing and Portfolio Construction

13.1 Basic Position Sizing

For a 50,000 RMB portfolio with 3-5 stocks:

Conservative (beginner month 1-3):
  20% per position maximum
  Total invested: 60-80%
  Cash reserve: 20-40%

Moderate (beginner month 4-6):
  25% per position maximum
  Total invested: 75-85%
  Cash reserve: 15-25%

Never:
  > 30% in a single stock
  > 90% total invested
  < 10% cash

13.2 Building Positions Gradually

Do not buy your full intended position at once:

  1. First buy: 50% of intended position
  2. Wait 3-5 days: If the stock moves in your favor, add the remaining 50%
  3. If the stock moves against you: Do not add. Either hold with your stop in place or exit.

13.3 Portfolio Review Schedule

14. Trading Psychology

14.1 The Emotional Cycle

Yang Jin describes the beginner's emotional cycle:

Excitement (just opened account, full of hope)
  -> Overconfidence (first winning trades)
    -> Greed (increase position sizes, ignore risk)
      -> Fear (first significant loss)
        -> Panic (sell everything at the worst time)
          -> Despair (consider quitting)
            -> Education (study what went wrong)
              -> Discipline (apply rules consistently)
                -> Steady progress (the goal)

14.2 Key Psychological Rules

  1. Trade what you see, not what you hope. If the stock is going down, it is going down. Your hope does not change reality.
  2. Accept losses as business costs. Every business has costs. In trading, controlled losses are the cost of doing business.
  3. Never average down. Buying more of a losing stock is the beginner's most expensive mistake.
  4. Take breaks. After a loss, step away. Revenge trading (trying to make back losses immediately) leads to larger losses.
  5. Keep a trading journal. Record every trade: why you entered, why you exited, what you learned.

14.3 Information Overload

15. Common Beginner Mistakes

15.1 The Ten Deadly Mistakes

# Mistake Why It Happens How to Avoid
1 No stop-loss Hope that the stock will recover Set stop before every trade, use alerts
2 Averaging down "It's cheaper now, must be a better deal" Never add to a losing position
3 Chasing hot stocks Fear of missing out (FOMO) If you missed it, wait for the next setup
4 Overtrading Boredom, excitement, desire for action Set a maximum of 2-3 trades per week
5 Ignoring fees Not accounting for commissions and taxes Calculate total round-trip cost before trading
6 All-in on one stock Conviction without experience Maximum 25% per position
7 Trading on tips Trust in others over personal analysis Verify every tip with your own research
8 Selling winners too early Fear of giving back profits Use trailing stops instead of fixed exits
9 Holding losers too long Hope and denial Respect your stop-loss rules
10 Trading ST stocks Attracted by low prices Avoid ST stocks entirely as a beginner

15.2 The First-Year Survival Guide

15.3 When to Stop Trading

Recognize that active trading is not for everyone. Consider stopping if:

Alternative: invest in index funds (ETFs) for long-term wealth building.

17. Key Quotes and Principles

"The stock market is not a casino unless you treat it like one. Approach it with discipline and respect, and it will reward you over time."

"Your first goal is not to make money. Your first goal is to not lose money. If you can survive your first year with your capital mostly intact, you have already succeeded."

"A stop-loss is not a sign of failure. It is a sign of discipline. The market takes from those who refuse to accept small losses and gives to those who do."

"Never buy a stock because someone told you to. If you do not understand why you are buying, you will never know when to sell."

"The market will be open tomorrow, next week, next month, and next year. There is no rush. The worst trades come from the fear of missing out."

"Keeping a journal is the single most powerful tool for a beginner. Write down every trade, every emotion, every lesson. Your journal is your most honest teacher."

"If you find yourself checking stock prices every five minutes, you are not investing — you are gambling. Set your stops, set your alerts, and step away."

"The best stock for a beginner is not the one that will go up the most. It is the one you understand the most. Understanding creates conviction, and conviction creates discipline."

"Paper trading is not a waste of time. It is the cheapest education you will ever receive. Would you fly a real airplane before using a simulator?"

"There are only two types of losses in the stock market: small, planned losses that are part of your strategy, and large, unplanned losses that destroy your capital. Choose which type you will experience."

This specification synthesizes the core methodology from "我的第一本炒股书" by Yang Jin, structured as a comprehensive beginner's guide to stock trading in the Chinese A-share market.