Recently, I’ve been chatting with many retail investors and found that most people don’t have a deep understanding of the turnover rate indicator. Some even confuse it with trading volume. In fact, the turnover rate is the real magic tool that helps you see the actions of the main players clearly. Today, I’ll clarify this logic for everyone.

Let’s start with the most straightforward understanding: the turnover rate is the trading frequency of a stock over a certain period, reflecting how active the stock is. Think about it—if no one cares about a stock, it’s like a dead pond, but if suddenly there’s increased buying and selling, something is definitely happening. That’s why I say the turnover rate is the best way to find the main players.

I’ve seen too many beginners make the mistake of focusing solely on the stock price, thinking that a $70 stock is more expensive than a $7 stock. Actually, that’s completely backwards. A stock trading at $70 with a P/E ratio of only 10 times is cheaper than a $7 stock with a negative P/E ratio. To judge whether a stock is cheap or expensive, you need to look at its intrinsic value, not just the current price. Here’s a simple method: pull out stocks in the same sector, rank them by P/E ratio, net profit, number of shareholders, and net assets per share. Then, look at dividend payout ability. By scoring your stocks based on these indicators, you can truly know whether you’re holding a bargain or an overvalued stock.

Back to the turnover rate: the official definition is the trading volume over a period divided by the circulating shares, multiplied by 100%. For example, if a stock has a monthly trading volume of 10 million shares and a total share capital of 100 million shares, the turnover rate is 10%. In the Chinese market, we usually only consider the turnover rate of circulating shares, which better reflects true liquidity.

Different ranges of turnover rate show completely different states of the stock. A turnover of 1% to 3% indicates that no one cares about this stock—institutions are not involved, and retail funds are not interested. Usually, these are large-cap stocks or stocks with very traditional themes. A turnover of 3% to 5% suggests some tentative accumulation, but activity is still limited. From 5% to 7%, bulls and bears start to diverge. If the turnover rate stays in this range and the stock price gradually rises, it’s very likely that the main players are slowly accumulating.

Between 7% and 10%, the main players’ buying activity becomes more aggressive. If this occurs during a downtrend, it could be the main players suppressing and shaking out weak hands, with relatively light tactics. When the turnover hits 10% to 15%, it’s a clear signal that the main players want to control the stock, increasing their accumulation efforts, preparing for a rise. From 15% to 20%, trading becomes more active, and volatility increases. If this volume appears at a low point, it might be a sign of an upcoming move; but if it occurs at a high point, caution is advised.

When the turnover rate reaches 20% to 30%, the battle between bulls and bears intensifies. At low levels, the main players might be aggressively accumulating to attract retail investors; at high levels, it’s a sign of distribution. Today’s main players are very clever—they split large orders into smaller ones to sell gradually, reducing costs and preventing retail investors from panicking and selling off.

A turnover rate of 30% to 40% is already very high. Only stocks with strong themes or hot topics tend to have such high turnover. Main players prefer to accumulate quietly because obvious signs can push prices higher and increase their cost of building positions. This situation often indicates distribution, with the main players offloading chips to new investors. When the turnover hits 40% to 50%, attention is extremely high, and the stock price swings wildly. Most people can’t hold on, and the risk is very high. My advice is to be cautious when entering.

At 50% to 60%, it’s usually due to a major news event causing significant disagreement. If the stock is at a high, those selling are typically early profit-takers, while buyers are looking to catch the dip. Between 60% and 70%, it’s extremely crazy—buyers and sellers are arguing fiercely. If this occurs at the bottom, it’s usually a sign of a sudden major positive news; if at the top, it’s the situation described above.

From 70% to 80%, the stock has deviated from normal ranges, and uncertainty is very high. If the stock is falling, I strongly advise against catching falling knives, as there may be unknown negative news, and the decline tends to be persistent. Such high turnover rates often mean the stock will continue to fluctuate sharply. From 80% to 100%, nearly all chips are changing hands, and market sentiment is at its peak. My suggestion is to observe from afar and not to gamble; wait until things calm down before stepping in.

My trading principle is simple: pay attention to volume surges at low levels, as they are worth noting; at high levels, I avoid buying during declines. I also won’t buy during continuous drops. If I like a stock, I’ll wait until it stabilizes before entering from the right side. Don’t fight the trend—this is my respect for the market.

When identifying main players, the turnover rate is the most direct tool. Some stocks have very low turnover but their prices keep rising, indicating that there are long- to medium-term main players operating. Such stocks tend to be more sustainable and carry less risk. Conversely, if a stock is in a downtrend with very low turnover, especially after a period of accumulation by the main players, and then shows this pattern after a shakeout, it’s a sign that the stock has bottomed out.

But does a higher turnover rate mean the stock will rise more? The answer is no. When the stock price is still in an upward phase, this is true. But once the stock has risen significantly and is far from the main players’ cost basis, the situation reverses. High turnover rate then signals distribution. We often say “sky-high volume, sky-high price,” which describes this. During an uptrend, the stock must maintain a steady, high turnover rate; if the turnover rate decreases, it indicates that the buying momentum is waning, and the upward movement will weaken.

In practice, there are a few more details to note. A turnover rate below 3% is quite normal, usually indicating no strong institutional operation. Between 3% and 7%, the stock is becoming relatively active and warrants attention. A daily turnover rate of 7% to 10% is common in strong stocks, indicating high activity and that the stock is widely watched. If the daily turnover exceeds 10% to 15%, and it’s not during a historical high or a long-term top, it suggests large institutional operations. If it stays around 15% or more in a concentrated trading zone, it could mean the stock has significant upward potential—characteristic of super-strong institutional stocks.

I also pay close attention to stocks with consistently high turnover and increasing price and volume. This indicates deep involvement by the main players. As the stock rises, profit-taking and stop-loss selling pressure increase. The more active and thorough the turnover, the more effectively the selling pressure is cleaned out, and the average cost of holders rises, reducing selling resistance on the way up.

Another phenomenon is that after a big rally, the turnover rate drops while the stock price fluctuates with the market. This usually occurs in growth stocks, indicating that a large amount of chips has been locked in, and the main players are doing long-term operations. Over time, the stock will climb further. Also, a surge in turnover with little price fluctuation often indicates pre-arranged distribution, which is worth studying.

The first day of a new stock’s listing usually has a very high turnover rate, which is normal. During IPO, the stock is subscribed with cash, and holdings are quite dispersed. A very high turnover rate on the first day indicates active accumulation. If the turnover remains high for several days and the stock price rises significantly, much higher than the market, it can be due to various reasons—main players building positions, short-term speculators, or old institutional players offloading. Further analysis with other factors is needed.

Finally, I want to emphasize that the higher the stock’s turnover rate, the more active the trading, and the higher the willingness to buy—these are hot stocks. Conversely, a low turnover rate indicates less attention and is characteristic of cold stocks. High turnover usually means good liquidity and easier entry and exit. However, stocks with high turnover are often targeted by short-term funds and speculative traders, leading to larger price swings and higher risks. Combining turnover rate with price trends can help predict future movements. If a stock’s turnover rate suddenly spikes along with volume, it may mean investors are heavily buying, and the price could rise. If the upward trend continues and turnover rate rises again, it might indicate profit-taking, and the stock could fall.