The Chande theory, fully known as 'Chande Zhuang Chan Theory', is a complete trading analysis system proposed by the online ID 'Chande Zhuang Chan'. It does not rely on a single technical indicator but reveals the laws of market trend formation, continuation, and termination by interpreting the intrinsic structure of candlestick patterns. It is applicable to all financial markets with candlestick charts, including stocks, cryptocurrencies, and futures, and its core is to shift traders from 'guessing ups and downs' to 'seeing the structure', using quantifiable patterns to judge market direction.
1. Fundamental core axiom: the trend must be perfect.
This is the cornerstone logic of the Chande theory - any market trend will inevitably come to an end, and is composed of three basic forms: 'uptrend, downtrend, and consolidation' that cycle and combine. Just like the changing seasons in nature, an uptrend will inevitably be followed by a pullback, and after consolidation, a direction will always be chosen; there are no perpetual one-sided trends, nor endless oscillations. This axiom informs traders: market trends have their intrinsic inevitability, and there is no need to be entangled in 'how long it will rise' or 'how much it will fall', but rather to identify which stage the current trend is in and wait for a clear signal after the pattern is completed.
Two, the 'soul' of Chande Theory: the center
The center is the most core concept of Chande Theory, referring to the 'price concentration area' formed by the repeated oscillation of K-lines within a certain price range. Simply put, it is the 'balance point of bull and bear games' in the market over a period of time.
The central point is divided into three categories:
- Ascending center: A pullback concentration area formed in an uptrend, similar to a 'resting platform' when climbing a mountain, likely to continue upward after a break.
- Descending center: A rebound concentration area formed in a downtrend, akin to a 'buffer zone' when going downhill; after a brief rebound, it often continues to decline.
- Consolidation center: A shock concentration area formed during a sideways market, where the forces of bulls and bears are stalemated, and a new trend will only begin when one side breaks out of the range.
The core function of the center is to 'judge trend strength': in a trend, the center continuously rises (in an uptrend) or falls (in a downtrend), indicating a strong trend; if the center oscillates in the same range for a long time, it indicates that the market is in a consolidation state, waiting for a direction choice.
Three, the 'basic components' of movement: fractals, strokes, segments
Chande Theory disassembles complex K-line charts into identifiable basic units through the hierarchy of 'fractals → strokes → segments,' similar to building a structure with blocks, making the ambiguous trend clear and discernible.
1. Fractal: The basic shape of K-lines
Fractals are the smallest units that make up a trend, divided into top fractals and bottom fractals, composed of three adjacent K-lines:
- Top fractal: The high point of the central K-line is the highest among the three, and the low point is also the highest among the three, resembling a 'peak,' indicating a possible market pullback;
- Bottom fractal: The low point of the central K-line is the lowest among the three, and the high point is also the lowest among the three, resembling a 'valley,' indicating a possible market rebound.
Fractals are the 'warning signals' of trend reversals, but a single fractal is not enough to judge a trend change; it needs to be confirmed by subsequent formations.
2. Stroke: The 'basic segment' of the trend
A stroke is a unit of movement formed by connecting adjacent top and bottom fractals, meeting certain K-line quantity requirements (to avoid short-term noise interference):
- Ascending stroke: Starting from the low point of the bottom fractal, extending up to the high point of the next top fractal, representing a short-term uptrend;
- Descending stroke: Starting from the high point of the top fractal, extending down to the low point of the next bottom fractal, representing a short-term downtrend.
The role of strokes is to connect scattered fractals, forming a directional short-term trend, allowing traders to visually see the 'small-level trend' of the market.
3. Segment: The 'complete paragraph' of the trend
A segment consists of multiple strokes and must contain at least one center. It represents a complete trend or consolidation.
- Ascending segment: Formed by multiple ascending strokes and ascending centers, continuously creating higher highs and higher lows, representing a clear uptrend;
- Descending segment: Formed by multiple descending strokes and descending centers, constantly creating lower lows and lower highs, representing a clear downtrend;
- Consolidation segment: Composed of multiple strokes and consolidation centers, with no obvious direction in highs and lows, representing that the market is in a state of oscillation.
Segments are the core units of Chande Theory analysis. By identifying the types and changes of segments, one can judge the major direction of the current market.
Four, core trading logic: Make decisions based on structure
The trading logic of the Chande Theory is not about 'predicting the market,' but rather 'following the market.' The core is to capture clear buy and sell signals through the combination of fractals, strokes, segments, and centers.
1. Trend market: Go with the trend
- In an uptrend, focus on the 'third type of buying point after a pullback': When the price pulls back to form a new ascending center and then breaks through the previous high, along with a bottom fractal confirmation, it indicates the continuation of the uptrend, allowing for a position entry;
- In a downtrend, focus on the 'third type of selling point after a rebound': When the price rebounds to form a new descending center and then breaks below the previous low, along with a top fractal confirmation, it indicates the continuation of the downtrend, allowing for a short position.
2. Consolidation market: Wait for the breakout
In a consolidation market, the center is the core judgment basis: When the price breaks through the upper edge of the center, and there is resonance confirmation from fractals and strokes, it indicates the end of consolidation and the beginning of an uptrend; when the price breaks below the lower edge of the center, and the formation is confirmed, it indicates the end of consolidation and the beginning of a downtrend.
3. Stop loss and take profit: Using the center as an anchor
The stop loss and take profit logic of Chande Theory rely entirely on structure: The stop loss for trend-following trades is set at the edge of the nearest center (for example, entering at the third type of buying point, stop loss below the lower edge of the center). Once the price returns to the center, it indicates trend failure, and exit immediately; the take profit looks towards larger level centers or previous highs and lows, allowing profits to follow the trend.
Essentially, Chande Theory is a way of thinking that 'deconstructs the market'—it does not rely on emotions, news, or predictions, but rather quantifies the structural relationships of K-lines, allowing traders to understand the 'language' of the market. Whether a novice or an experienced trader, mastering the core logic of Chande Theory enables one to grasp the market context more clearly and find clear decision-making basis in complex market conditions.
