[Red Envelope] [Premium Content Sharing] A Brief Discussion on How Retail Investors Can Profit in a Market Dominated by Quantitative Trading

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Lately, I’ve been watching the fresh newbies pouring into this year’s bull market, one after another. I’ve watched how, when everyone gets trapped, they react like headless flies—at a loss, confused. Zhuang Ge seemed to see his past self, so today Zhuang Ge decided—starting from here, every week there will be a column. It’ll be posted in the weekend recap post. I’ll share some practical know-how and key points that beginners should learn. Every week’s column is completely free. The column is called 《100 Commitments with Awakening to the Dao》

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The main content begins!

Featured practical takeaways: Under a market dominated by quant trading, how retail investors can profit

Good evening everyone, I’m Zhuang Ge. After so many years in the market, I’ve seen every kind of big storm. But if I’m being honest, in these two years, even Zhuang Ge feels this market is a bit unfamiliar. Back then, the trading style of relying on instinct, relying on information, relying on following the boss—it’s becoming less and less effective. Why? Because quant has arrived, and it’s coming in fast and fierce. Many retail investor brothers complain to me: they can’t read the chart anymore. Stocks that look like they’re going to hit the daily limit suddenly get smashed down; stocks that are already falling terribly suddenly shoot straight back up. People end up getting trapped when chasing highs, and taking losses only to see it rally right after cutting—feels like they’re being targeted.

Actually, you’re not being targeted—you’re being harvested by quant.

As for quant, put simply, it’s** computer programs automatically trading according to written rules**. It has no feelings. It won’t fear or be greedy, and it definitely won’t be soft just because it’s down three daily limit days. What are its advantages? Fast execution, quick reactions, and strong calculation power. The moment a stock shows unusual movement, you’re still figuring out what’s going on—meanwhile quant has already completed the buy or sell action within a few milliseconds. And today’s quant isn’t like the old simple trend-following. It combines big data, artificial intelligence, and high-frequency trading strategies. It can capture the emotion and behavioral patterns of most retail investors in the market.

So does that mean retail investors have no way to play?** Of course not. No matter how powerful quant is, it’s not a god. It has its weaknesses too.** Today we’ll lay this out clearly: in a market dominated by quant, how exactly should retail investors live through it—and even profit.

First, you have to understand quant’s underlying logic. Quant’s core is statistical arbitrage and a probability edge. It doesn’t care what this company does, who the boss is, or whether the products have competitiveness. It only cares about numbers like price, trading volume, and volatility—and the statistical patterns behind those numbers. For example, if it finds that after a certain K-line pattern appears, the probability of a rise the next day is sixty percent, then it will buy every time that pattern appears, using the law of large numbers to make money. One or two times it might lose, but once you go through a thousand or ten thousand times, it wins.

This leads to quant’s first weakness: it depends on historical patterns. If the market environment changes fundamentally, and the previously effective rules suddenly stop working, quant strategies can suffer widespread losses. For instance, last year, many quant funds that traded small-cap stocks—one day, they lost more than ten percentage points. The reason was a switch in market style: their models hadn’t adjusted in time. Where’s retail investors’ advantage? You can adapt flexibly. You don’t have tens of billions or hundreds of billions of capital to manage. When you decide to change course, you can change course. Small boats are easier to turn—this advantage is something big institutions and quant funds always envy.

So how do you operate specifically? I’ll give brothers a few solid, practical ideas.
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First idea: give up high-frequency battles and shift to deep fundamental research.** Quant is best at short-term battles—enter and exit in seconds, earning that one or two percentage points of spread. If you compete with it on the same dimension, you’ll never win. It’s like racing Bolt in a 100-meter sprint—you’re just looking for pain. But if you race him in a marathon, his advantage shrinks a lot. The same logic applies in the stock market. If you do super-short-term trading—using the minute chart or hourly chart—then you’re playing in quant’s home court. What’s the right approach? Look longer-term. Give up short-term small-cap arbitrage and consider capacity waves. A quant model can analyze historical data, but it can hardly truly understand an industry’s long-term trend, and it’s even harder to judge whether a theme is reliable. Those qualitative things are where retail investors can build an edge.

Second idea: use the behavioral patterns of quant and do the opposite. Many quant funds use homogenous strategies, especially those based on trend-following and momentum. When the market forms a certain trend, they buy in a frenzy, accelerating the rise. When the trend reverses, they collectively sell, intensifying the drop. This causes a phenomenon: when prices rise, they rise too much; when prices fall, they fall too much. As a retail investor, you can exploit this overreaction. When a stock is collectively dumped by quant due to short-term bad news, and the price falls to an obviously unreasonable low, it may actually be a buying opportunity. Similarly, when a stock is pushed by quant to a clearly overvalued level, that’s the time to sell.

Of course, there’s a key point here—you have to be able to judge what a reasonable price is. This brings us back to the first point: you need to have your own judgment about the value of individual stocks and themes. If you don’t have that ability, then this opposite approach becomes guessing the bottom and the top, which is no different from gambling.

Third idea: avoid stocks that quant is crowded into. Quant especially likes stocks with good liquidity, moderate market cap, and high volatility. Why? Because with good liquidity they can enter and exit smoothly, and with higher volatility there’s more room for arbitrage. Small- and mid-cap stocks with daily turnover of a few hundred million to several billion are the most active battlefield for quant. On the other hand, some large-cap blue chips—especially those with stable dividends and relatively smooth price action—quant is less interested, because the volatility is too small to earn meaningful spread. And there are those unpopular stocks where daily turnover is only tens of millions or even a few million; quant basically doesn’t go there either, because once money goes in it can’t get out.

So retail investors can choose to avoid the main battlefield. It’s not saying you should buy stocks with absolutely no liquidity. It’s saying you can pay more attention to stocks where institutional holdings are high and the price action is relatively steady. These stocks are affected less by quant shocks. Their prices are driven more by fundamentals, making them more suitable for retail investors to research, track, and hold.

Fourth idea: use position management and stop-loss strategies to fight against quant’s randomness. Many retail investors lose money not because they picked the wrong stock, but because they carry too large a position and can’t handle the volatility psychologically. Quant-created volatility is huge. It might be up two percentage points in the morning, but by afternoon it slams down to the limit-down. If you hold a full position in one stock, you can’t withstand this kind of fluctuation at all—you’ll easily panic-sell right on the floor. What’s the correct approach? Diversify holdings, and keep any single stock’s position within ten percent. That way, any extreme volatility in a single stock won’t deal a devastating blow to your overall account. At the same time, set a clear stop-loss line—for example, exit unconditionally when down eight percent or ten percent. Don’t talk emotion with quant; it doesn’t talk emotion, and you shouldn’t either.

Stop-loss sounds easy, but it’s hard to do. Many brothers lose ten percent but can’t bring themselves to sell. They think it’ll rebound, and end up losing thirty percent—still unwilling to sell—until they become long-term shareholders. Quant won’t wait for your rebound. If it’s time to smash, it smashes. So discipline is crucial: once you reach the stop-loss level, leave decisively—don’t hesitate. Better to sell wrong than to get trapped. If you sell wrong, you still have a chance to buy back; if you get trapped, you might have zero chance to turn things around.

Fifth idea: watch for abnormal signals in price-and-volume relationships. Quant may be fast, but it leaves traces. For example, you might suddenly see a large number of “support orders” or “push-down orders” appear in the order book—then they’re removed quickly. Or the trading volume suddenly expands but the stock price doesn’t move much. Or in the intraday chart you see extremely regular sawtooth-like price action. These could all be traces of quant activity. When you find these signals, don’t rush in—raise your alertness instead. If a stock is heavily controlled by quant, stay as far away as possible. Unless you’re very certain you can run faster than quant—but honestly, most people can’t.

One more very important thing: don’t blindly trade in the first half hour after the open and in the half hour before the close. Those two periods are when quant is most active. After the open, quant quickly rebalances based on overnight information. All kinds of program orders fly across the sky, and price swings are violent and chaotic. Before the close, quant performs all kinds of strategy hedging and position adjustments, which can also easily trigger irrational volatility. You can wait until market sentiment stabilizes before acting. For example, from after 10:30 a.m. until before 2:30 p.m., quant’s impact is relatively smaller, and price action more accurately reflects real supply and demand. Of course, it depends on your specific trading style!

Let’s also talk about the board-hitting (打板) strategy that many people care about. In the past, many bull money traders and retail investors made money by hitting the board. But after quant came in, board-hitting has become increasingly harder. Why? Because on today’s limit-up boards, many of them are quant orders. You queue for a full half day, and after you finally get matched… quant instantaneously cancels the order, and you become the bag holder. Or if you buy on the board, the next day quant directly hits the cancel-to-limits button—you don’t even get a chance to run. So unless you have extremely strong order-book feel and can quickly cut losses, I suggest brothers temporarily don’t touch this board-hitting style. It’s not that you definitely can’t make money, but the risk-reward ratio is already severely not worth it.

So what strategies are relatively effective now? Low-buying strategies. That means when a stock shrinks volume and pulls back to an important support level, you buy in batches—no chasing highs, no rushing to bolt. Quant may create volatility, but it can’t completely erase the trend. If a stock’s fundamentals are fine, after it pulls back on shrinking volume to a key position, money naturally comes in to absorb. At this point, low-buying gives you a lower cost than quant, and your holding mindset is also better. Even if quant keeps smashing, it has to consider costs—it can’t smash infinitely.

Another strategy is event-driven. Quant can handle historical data, but it’s hard for it to truly predict those real sudden events in advance—such as policy tailwinds, product breakthroughs, industry turning points, and so on. Once you position ahead of such an opportunity, and the event happens and the stock rises, quant only comes in afterward, playing catch-up and helping you lift the sedan. This is “recognition turning into money,” and it’s the place where retail investors can truly build a moat.

Finally, I want to say a few things from the heart to my brothers. The market has indeed changed. It has become faster, colder, and less considerate. But no matter how the market changes, some things don’t change. Human nature doesn’t change, the laws of value don’t change, and cycles don’t change. Quant can accelerate volatility, but it can’t create trends. Real trends still come from changes in themes and the consensus of capital.

Also, mindset matters a lot. Don’t always think about making money every day, and don’t think about grabbing every opportunity. In the stock market, opportunities are never in short supply—but your principal is limited. Protect your capital, wait for the certainty-high opportunity that belongs to you, and then go in with heavy position sizing. During other times, be patient and wait, or keep a light position to maintain your trading feel. Many people understand this, but few can truly do it. Why? Because they can’t control their hands, because they’re afraid of missing out. But think about it: missing out just means making less; losing money is a real loss. Which is harder to bear?

In a quant-dominated market, retail investors really are tougher. But “hard” doesn’t mean “no opportunity.” As long as you’re willing to change, willing to learn, and willing to give up those unrealistic board-hitting fantasies of getting rich quickly—if you steadily pursue compounding—then you can still profit. And even because of quant’s existence, the market has more ineffective noise, which creates more opportunities for excess returns for prepared people. The key is: are you that prepared person.

I’m Zhuang Ge, and that’s what I’ll talk about today. Brothers, if you have ideas or your own experiences, welcome to exchange more. The market is always changing. The only thing that doesn’t change is that we must keep evolving. Wishing everyone can survive in this market—keep it up!

Thanks to friends who supported me yesterday
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