Introduction
Chanlun (or "Chan Theory") is a technical analysis framework developed by Chinese stock market analyst Chan Zhong Shuo Chan. At its core, Chanlun identifies recurring price patterns using concepts like "central pivot," "stroke," and "segment" to predict market trends and trading opportunities. This theory posits that price movements follow identifiable structures rather than random fluctuations.
The Enigma Behind Chanlun
The author's identity remains shrouded in mystery. Initially posting under the pseudonym "Girl Who Loves Math," the writer later adopted the name "Chan Zhong Shuo Chan." While some speculate the author might be Li Biao—a notable trader behind Yian Technology—this theory lacks verification. The ongoing speculation about the author's background adds an intriguing layer to Chanlun's legacy.
Core Concepts
1. Top and Bottom Fractals
- Top Fractal: A three-candlestick pattern where the middle candlestick has the highest high, flanked by lower highs.
- Bottom Fractal: The inverse, with the middle candlestick marking the lowest low.
Example:
BTC often exhibits these fractals at key reversal points.
2. Strokes
A "stroke" connects adjacent top and bottom fractals, representing a single price swing. Rules include:
- No shared candlesticks between fractals.
- The top fractal’s peak must exceed the bottom fractal’s trough.
3. Segments
Comprising multiple strokes, segments reflect higher-tier trends. A valid segment requires:
- At least three overlapping strokes.
- Clear directional momentum.
4. Central Pivot, Trend, and Consolidation
- Central Pivot: A price range where fluctuations converge (minimum three overlapping waves).
- Consolidation: Single-pivot price stagnation.
- Trend: Multiple sequential pivots in the same direction.
Advanced Principles
Central Pivot Evolution
- Extension: Prices continue oscillating within the existing pivot.
- Renewal: Price breaks out, forming a new pivot.
- Expansion: Price re-enters the original pivot zone, creating a larger pivot.
Divergence (Bei Chi)
Divergence signals trend exhaustion when:
- Price makes higher highs/lower lows.
- MACD fails to confirm (e.g., shrinking histogram).
Note: Divergence implies imminent reversal or consolidation.
Key Theories
1. Principle of Perfection
All trends either:
- Transform into consolidation.
- Consolidation resolves into a new trend.
Implication: Markets cycle endlessly between these states.
2. Decomposition Theorem
- Any trend splits into rises, falls, or consolidation phases.
- Every trend contains at least three sub-trends (including one central pivot).
Trading Signals
Buy Points
- Type 1: Reversal at divergence after breaking the final pivot in a downtrend.
- Type 2: Pullback post-Type 1, staying above the initial low.
- Type 3: Breakout retest that holds above the prior pivot.
Comparison:
Type 1 catches reversals; Types 2–3 confirm trend strength.
Case Study: Bitcoin (January 2024)
- Divergence Spotting: Price hit new lows while MACD weakened → Type 1 buy signal.
- Type 2 Formation: Price rebounded, consolidated (blue box), and held above the Type 1 low.
- Type 3 Confirmation: Breakout retest stayed above the pivot, supported by rising MACD.
👉 Explore real-time BTC trends
FAQs
Q: Is Chanlun suitable for crypto markets?
A: Yes, its focus on price structure applies universally, though volatility requires tighter risk management.
Q: How reliable are divergence signals?
A: They indicate potential reversals but should be confirmed with volume/pivot analysis.
Q: Can beginners use Chanlun effectively?
A: The learning curve is steep—start with higher timeframes (4H/day) to reduce noise.
Conclusion
Chanlun offers a structured lens to decode market movements, emphasizing geometric precision. While powerful, its subjectivity demands experience. Pair it with fundamentals and risk tools for optimal results.
Final Tip: Chanlun excels in trending markets; avoid over-reliance during erratic phases.