Breakout and Reversal Practical System: Identifying Main Players with Massive Yin-Yang, Using Volume-Price Relationship to Capture Reversals!

Good weekend everyone. In practical trading, we need to be proficient in the break and rebound leading strategy. By analyzing the volume characteristics of massive sell-offs and buy-ups, we can accurately identify main force shakeouts and test runs; combined with rigorous analysis of the volume-price relationship, we can precisely grasp the key points of main force initiation and acceleration. We have developed a clear logical and high-win-rate practical trading system based on this. [Taogu Ba]

The break and rebound is a classic high-probability, high-risk-reward pattern in short-term trading. The core is that after a stock hits the limit-up and breaks the board, through capital support, volume changes, moving average support, and emotional cycle resonance, it forms a rebound rally. Post-rebound, the main patterns are: immediate acceleration along the 5-day moving average, short shakeouts, long shakeouts, and confirmation of support after shakeouts. Different patterns are determined by the degree of main force control, thematic strength, volume structure, and market sentiment. How to distinguish whether a stock will undergo short or long shakeouts after breaking the board, whether a pullback after an upward move is a continuation confirmation, and details like whether the pullback is at a volume top/bottom or within cost ranges—today we will analyze two details in depth regarding the acceleration model of break and rebound shakeouts and the short/long shakeout periods.

1. Basic logic of break and rebound and direct acceleration trend

The core premise of break and rebound is that the stock is a core leader in its sector and a popular target. The success rate of follow-up stocks rebounding is less than 30%, while the leader’s rebound success rate exceeds 70%. The most powerful pattern is the direct acceleration after rebound, characterized by divergence volume at the break and board, with the next day continuing to rise along the 5-day moving average, the price staying close to the 5-day MA with continuous upward movement, no significant pullback, volume gradually increasing, and turnover rate stable within a reasonable range. This is the strongest form of break and rebound.

Conditions for acceleration:

• Market sentiment is in an upward or euphoric phase, with continuous increase in consecutive limit-up stocks, high risk appetite, and strengthened confidence in the leader;
• The break day is an active divergence, meaning early morning surge to test the limit, but in the afternoon sector rotation causes the stock to hit the limit again, not a passive break at the end of the day. The decline on the break day is ≤3%, and the price does not break below the 5-day MA;
• Volume on the rebound day reaches 80%-120% of the volume on the break day;
• The thematic sector remains strong, with no signs of retreat, forming a capital synergy.

Such conditions are rare and require strong patience and observation skills. In February, such stocks appeared less frequently, but in the commercial aerospace sector, many stocks exhibited these patterns.

For example, “Jiang Wuzhuang Equipment” in February met the criteria of massive buy-up shakeout and volume-driven acceleration after a break, with volume increasing significantly on the rebound along the 5-day MA, and a second break and rebound with self-selected stocks.
Core theme: Price increase logic, related to tungsten metal price rise, with volume and price rising together, currently in an acceleration phase.

Technical buy points:

• The first is after point A breaks the board, the main force uses four days of volume reduction to shake out half the positions, then on day 5, the stock closes above the top of the real body at point A (not the highest price). This day is critical for tracking. After volume reduction and upward movement, the stock revisits the highest point of A, forming a small position buy point. This pullback after the rise confirms the trend, with volume decreasing and the price pulling back to the real body top of the break day—this is called a pullback confirmation (without breaking the top), and it’s a good entry point;
• The second is adding positions at a volume double the usual at a limit-up, if insiders have noticed this, they can continue to add;
• The third buy point is at point B, ideally identified during the break day with double volume, and only after D point is it considered for action, which is slightly late.

Summary: It’s a typical pattern where the stock starts with double volume accumulation at point A, followed by strong shakeouts, with all movements staying above the lowest price of A, indicating stable main force control and no need for large-volume shakeouts. If the volume during shakeouts is about half or less, and the stock doesn’t break the bottom of the divergence volume, the main force control is very stable and ready for quick acceleration. If the price breaks the divergence volume bottom, it indicates weaker control, and the stock will continue to shake out with smaller volume, taking longer. This detail is often unnoticed but explains why volume reduction shakeouts can be short or long.

In February, many core stocks in the aerospace sector experienced quick shakeouts and acceleration, such as Aerospace Power, Aerospace Electronics, Beidou Star, etc. I shared these daily, especially Beidou Star for three consecutive days.

Looking back at these articles, all my shares were valuable insights. Unfortunately, many people didn’t believe or support at the time. Honestly, even holding a stock for a short period could double your money, not to mention aerospace development stocks.

Summary:

Application of the acceleration model in break and rebound:

1. Mostly appears in core themes with continuation;

2. Stocks with high main force control, heavy lifting tasks, needing quick rise;

3. Technical standard: after a massive volume divergence at the break, within 3 days, if the stock rebounds and surpasses the real body top of the break day, it’s a signal;

4. During rebound, volume can be high, flat, or slightly reduced, but for three consecutive days, volume should not be less than one-third of the previous day, and the stock should move upward along the 5-day MA, with little chance of retracement. Even if it pulls back, it will stay within a platform for 3 days, not breaking the real body or top of the break day;

5. This pattern is the strongest, and with regular review and tracking, opportunities like this should not be missed.

6. Shakeout after rebound (volume reduction shakeouts of 1/2 and 1/4)

Shakeouts after rebound are used by main forces to clear out floating chips and reduce lifting costs. The duration depends on control strength, selling pressure, chip structure, and thematic cycle. Short shakeouts (1-3 days) and long shakeouts (over 5 days) can be distinguished clearly through volume and price, with divergence volume and price on the break day as benchmarks.

A 1/2 volume reduction shakeout is considered a short-term shakeout, while a 1/4 volume shakeout is a long-term process.

• When the divergence volume is large, the main force conducts a 1/4 volume shakeout to reassert control. Once volume drops to 1/4 of the divergence volume, and the stock again rises strongly and surpasses the real body top of the divergence day, it’s a key entry point.

(This relay and platform type rebound are very important. For most retail investors, it’s hard to understand. It’s crucial to grasp this, worth millions. A dedicated session on relay and platform type patterns is recommended.)

3. Confirmation after shakeout ends:

After shakeout, when the stock breaks through the divergence volume (the volume platform of the break day), a pullback confirmation occurs, which is a key buy point for the second rise. The confirmation can be: pullback at divergence volume top, at divergence volume real body upper part, or at divergence volume cost bottom. The strength, success rate, and logic differ among these.

(1) Criteria for pullback confirmation:

• Shakeout signal: volume shrinks, decline halts, volume decreases to very low levels over 3 days, price stabilizes above short-term moving averages, MACD shows a golden cross above zero, and red bars lengthen;
• Break divergence volume: volume exceeds the highest price of the break day (divergence volume top) or the open/low of the break day (cost bottom), volume surpasses that of the rebound day;
• Pullback confirmation: after breakout, the stock does not continue rising but pulls back to the breakout level, volume shrinks but does not break the support, completing the “breakout - pullback - rise” pattern. Many stocks show this pattern, called pullback confirmation. Many retail investors misunderstand this and get shaken out during the pullback, which is a common problem. Why pull back?

(2) Strength comparison between divergence volume top pullback and cost bottom pullback:

• Top pullback (strongest): price at divergence volume top, with support confirmed at that level, pullback within 3%, volume clearly shrinks; main funds are strong, releasing trapped positions, with no resistance above, just testing selling pressure—“air refueling.” Success rate over 80%, with high probability of opening higher the next day and hitting the limit-up, representing a core second wave buy point.
• Cost bottom pullback (weaker): after surpassing the cost range (open/low), the stock pulls back to that level with 5%-8% decline; main funds are weaker, need to accumulate at the cost level, some trapped positions remain, requiring a second buildup before rising. Success rate around 60%, with slower rise and possible oscillation, not a continuous acceleration.

The strength of top pullback is much greater than that of cost bottom pullback. Top pullback indicates strong control by main force and high ambitions, with no trapped pressure, minimal resistance. Cost bottom pullback still needs to digest selling pressure, indicating a weaker confirmation, suitable for conservative traders.

The core of the break and rebound strategy is “volume-price resonance, sentiment resonance, thematic resonance.” The three post-rebound patterns (direct acceleration, short shakeout, long shakeout) are essentially a game between main force control and market selling pressure. Short shakeouts occur in strong leaders, initial divergence, volume locking, and effective support, completed in 1-3 days. Long shakeouts happen in high-position stocks, passive breaks, waning sentiment, and loose chips, with no significant movement over 5 days. After shakeouts, the pullback at divergence volume top is the strongest signal—high success rate, fast rise; cost bottom pullback is secondary.

In practice, it’s necessary to combine volume, moving averages, sentiment, and themes for comprehensive judgment, not relying solely on candlestick patterns. Strictly follow stop-loss and take-profit rules, distinguish shakeouts from distribution, avoid misjudging long shakeouts as short ones, or distribution as pullback confirmation. Mastering this system allows precise capture of second-wave leader opportunities and stable short-term compound gains.

When applying the break and rebound strategy personally, I usually observe for about 5 days. If it exceeds 5 days, or volume reduces to 1/4 of divergence volume at the lowest price after a break, I won’t take action immediately. I wait until the main force finishes shakeout and volume doubles again, then re-enter some positions when the stock again surpasses the break day. If volume shrinks last week, most stocks will have a small-volume pullback for confirmation. Many retail investors get trapped at two points: first, not understanding the volume-price relationship of break and rebound shakeouts, following the main force and wasting time and money; second, knowing the main force rebounded but panicking at a pullback, rushing to cut profits.

The worst scenario is following the main force through shakeouts, holding too long, and selling just before the stock takes off. If you don’t understand shakeouts, save and review this article on break and rebound shakeouts, confirmation, and acceleration multiple times.

These are my personal insights and original analysis. No stock recommendations. The stock market is risky; invest cautiously!

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