Recently, many people are still debating whether stocks are cheap or expensive. The core logic behind this is a lack of understanding of stock turnover. Honestly, once you grasp the concept of turnover rate, your market comprehension can improve by an order of magnitude.

Simply put, the turnover rate reflects how frequently a stock is bought and sold, indicating how active it is. I’ve noticed many retail investors look only at the current price, thinking that a stock at 70 yuan is more expensive than one at 7 yuan—that’s a big mistake. What truly matters are metrics like the Price-to-Earnings ratio, net profit, and the number of shareholders. Comparing these across the same industry provides a more accurate judgment of whether a stock is cheap or expensive.

However, to understand the true intentions of the main players behind a stock, the turnover rate is the most direct signal. My experience shows that a turnover rate below 3% generally indicates no major institutional activity; these stocks are often insignificant, ignored by big players. Between 3% and 7%, things start to get interesting—indicating some capital is tentatively building positions. Daily turnover between 7% and 10% is common in strong stocks, meaning the stock is highly active and market attention is increasing.

The real insight into major players’ actions comes from the 10%–15% range. If the turnover rate stays in this zone and the stock price remains low, it’s a clear sign that big players are quietly accumulating shares, preparing for a rally. I’ve seen many such stocks, and their subsequent gains are often quite substantial.

But there’s a trap to avoid—high turnover at high prices and low turnover at low prices mean completely different things. Maintaining steady high turnover during an uptrend is a good sign, indicating fresh capital is supporting the pullbacks. But if the stock has already risen significantly and suddenly the turnover rate spikes, caution is needed. This could be a sign that big players are offloading shares, using high trading volume to disguise distribution. I often say “massive volume at sky-high prices” to describe this.

Volume at the bottom is the most valuable signal I look for. When a stock has been stagnant at the bottom for a long time with very low turnover, and suddenly the turnover jumps above 15% and stays high for several trading days, it’s a clear sign of new capital entering. When bottom accumulation is thorough, the supply pressure during subsequent rises is lighter, and such stocks often have greater upside potential.

In my practical experience, I’ve summarized a few rules: First, high turnover at low prices combined with rising prices is a typical feature of strong stocks. Second, high turnover at high prices often signals distribution—be cautious. Third, a sudden surge in turnover with little price fluctuation indicates someone is trading within a specific range; this situation is worth studying. Fourth, continuous high turnover over several days with significant price increases may mean the main players are raising positions or short-term speculators are jumping in.

Regarding the calculation of stock turnover, the formula is simple: Turnover rate = (Trading volume over a period / Circulating shares) × 100%. For example, if a stock trades 20 million shares in a month and the circulating shares are 100 million, the turnover rate is 20%. In our country, we usually only consider the circulating shares for calculation, which is more accurate.

My advice is: volume increase at low prices is worth paying attention to; volume increase at high prices and declining prices I personally avoid. When I like a stock, I wait for it to stabilize before entering from the right side—that’s respecting the trend. Don’t always try to catch the bottom; sometimes being cautious is the smartest choice.