Recently, I've seen many people discussing stocks again and noticed that a lot of them don't understand the logic behind turnover. Honestly, if you haven't fully grasped the concept of turnover rate, you're basically guessing in the stock market.

Let's start with what turnover means. Simply put, it refers to how frequently stocks are bought and sold, reflecting how active a stock is. Some stocks are traded daily, while others haven't seen any activity in half a day. The difference lies here. What does a high turnover volume indicate? It shows that the chips are constantly flowing, and both bulls and bears are engaged in fierce competition.

I've noticed an interesting phenomenon. Many retail investors always think that a stock priced at $70 is cheaper than one at $7, but that's a big mistake. Whether a stock is cheap or expensive doesn't depend on the current price; it depends on intrinsic value. If a $70 stock has a P/E ratio of only 10, and a $7 stock has a negative P/E ratio, then the $70 stock is actually the better deal. That's why it's important to look at P/E ratios, net profit rankings, shareholder numbers, book value per share, and dividend-paying ability. By ranking stocks within the same sector based on these indicators, you can assign a comprehensive score to your holdings and know whether you're getting a bargain or paying a premium.

Back to the turnover rate itself. According to official definitions, the turnover rate is the trading volume over a certain period divided by the circulating shares, multiplied by 100%. For example, if a stock trades 10 million shares in a month, and the circulating shares are 20 million, the turnover rate is 50%. But how should we interpret this number?

A turnover rate of 1%-3% usually means the stock is barely traded; institutions and speculators are not interested. It might be a large-cap stock that moves slowly or a traditional theme. A 3%-5% turnover indicates some tentative interest, but activity remains low. From 5%-7%, there are disagreements between bulls and bears, and the stock price gradually moves upward, possibly indicating that the main players are quietly accumulating. 7%-10% suggests active buying by major players; if the stock is falling, it might be a shakeout. 10%-15% indicates that the main players are trying to control the stock, with a clear increase in accumulation efforts.

Moving higher, 15%-20% means trading becomes more lively, and volatility increases. If the stock volume surges at a low price level, it could be a prelude to a breakout. But if volume surges at a high price and the stock declines, caution is needed. 20%-30% indicates fierce battles between bulls and bears. At low levels, it might mean the main players are aggressively accumulating to attract retail follow-on; at high levels, it could be distribution. 30%-40% is very high turnover, usually seen only in hot stocks with strong themes. Major players prefer to accumulate quietly here, as too much activity can push the price up and increase cost. This could also be a sign of distribution, with chips being exchanged to new hands.

At 40%-50%, attention is extremely high, and the stock experiences large fluctuations, making it hard for most people to hold, with high risk. 50%-60% might be triggered by a major news event causing significant disagreement. 60%-70% is extremely frantic, with buyers and sellers cursing each other. 70%-80% indicates the stock is off the rails, with huge uncertainty. If it’s falling, I advise against catching falling knives, as there could be unknown negative news. 80%-100% means almost all chips are changing hands, and emotions are at their peak; such stocks should be observed from afar and not touched.

How to identify main force actions through turnover? There are several key points to watch. Stocks managed by long-term main players often have very low turnover but steadily rising prices. This indicates sustained operation by major players, with strong continuity and low risk. Conversely, if a stock is in a downtrend and suddenly has extremely low turnover—especially if it previously had a large position built by the main players and then experienced a shakeout—it warrants close attention, as the stock may be bottoming out.

But there's a common trap: can we say that higher turnover always means higher stock prices? No. When a stock is in the process of rising, high turnover can be a good sign. But once the stock price has risen significantly and is far from the main players’ cost basis, high turnover can actually be a sign of distribution. This is the meaning of “massive volume at sky-high prices.” During an uptrend, maintaining a steady, high turnover rate is essential; if turnover drops, it indicates less capital chasing the stock, and the upward momentum may weaken.

In practical trading, here are some specific references. A turnover rate below 3% is quite normal, indicating no large capital is involved. Between 3%-7%, the stock is becoming relatively active. A daily turnover of 7%-10% is common in strong stocks, showing that the stock is or has become widely followed. If daily turnover exceeds 10%-15% and the stock isn’t at a historical high or peak, it suggests that a strong institutional player is actively operating. Over 15%, if the stock is trading intensively near a consolidation zone, it could mean significant upward potential—characteristic of super-strong institutional stocks.

Also, pay attention to stocks with consistently high turnover and increasing price and volume. This indicates deep involvement by the big players, as rising prices face selling pressure from profit-taking and stop-loss traders. The more active and thorough the turnover, the more the selling pressure is cleaned out, and the average cost of holders rises, reducing upward resistance.

Another common phenomenon is that after a sharp rise, the turnover rate drops back, and the stock moves with the market. This often occurs in growth stocks, indicating that a large portion of chips has been locked in, and the big players are operating long-term. Over time, the stock may climb further.

The first day of a new stock’s listing usually has very high turnover, which is actually a good sign. Since the initial distribution of shares is dispersed, a very high turnover rate on the first day indicates active accumulation. However, if high turnover persists for several days at high levels, and the stock price rises significantly beyond the market, it can have multiple interpretations: the big players might be raising positions, short-term speculators might be chasing, or the original big players might be distributing. It’s important to combine other factors for further judgment.

Regarding limit-ups, when a stock is about to hit the daily limit for the first time, stocks with lower turnover are usually better than those with higher turnover. This is especially important in weak or consolidating markets. Ideally, ordinary stocks should have a turnover below 2%, and special treatment (ST) stocks below 1%. These limits essentially reflect the amount of profit-taking and selling pressure on that day. The smaller the profit-taking, the more room there is for the stock to rise the next day.

To summarize the meanings of turnover rate: higher turnover indicates more active trading and higher buying interest, typical of hot stocks. Lower turnover suggests less attention, typical of less popular stocks. High turnover generally means good liquidity and easy entry/exit, but also indicates short-term capital chasing, higher speculation, larger price swings, and greater risk.

By combining turnover rate with stock price trends, you can make some predictions about future movements. A sudden increase in turnover and trading volume may mean investors are heavily buying, and the stock price could rise accordingly. Conversely, if a stock has been rising steadily and then its turnover rate quickly spikes, it might mean profit-taking is happening, and the stock could decline.

My personal trading principle is simple: pay attention to volume increases at low prices; avoid buying at high volume during a decline, especially when the stock is falling continuously. I only enter after the stock stabilizes and shows signs of support. Be cautious and don’t fight the trend—that’s my respect for the market.