How can value investing and trend trading be combined in China’s stock market to achieve maximum returns?

Value investing and trend trading—two forces alternating in dominance—are what enable maximum returns. 1. The relationship between value investing and trend Online debates abound over whether value investing or technical analysis is more useful. In my view, however, the two are in fact inseparable; relying solely on either school leaves serious gaps in one’s investment approach. The relationship between stock price and trend is fundamentally a contest between two forces: value investors set the price anchor; technical traders confirm the trend. Price serves as the anchor—determining the intrinsic worth of an asset. Trend acts as a thermometer—reflecting the collective sentiment and behavior of market participants. Without an anchor, the thermometer is meaningless. Over a complete cycle—"decline → bottoming → rise → peak"—these two forces alternate in dominance: • Decline phase: Company fundamentals remain sound, but market sentiment drives down the share price. Technical traders observe downward-turning moving averages and sell. The steeper the fall, the more they sell—and the more selling accelerates the decline. Meanwhile, value investors see valuations shifting from expensive → fair → cheap, and begin monitoring the stock. While technical traders sell, value investors watch. • Bottoming phase: The price falls to a clearly undervalued level, prompting value investors to buy gradually in tranches. The pace of decline slows; candlestick charts shift from steep drops to sideways consolidation; volume expands at the bottom—evidence of value investors accumulating shares. Technical traders notice the price rising above its moving average and the average itself turning upward, and join the buying. The two forces converge, formally reversing the trend. • Peak phase: After a substantial rally, the stock enters an overvalued zone, prompting value investors to reduce positions. Buying pressure wanes, and the price’s upward slope flattens. Technical traders spot bearish divergences or breakdowns below key moving averages and begin selling. Again, the two forces align—but now driving the trend downward. Conclusion: Value investing defines the valuation range—telling us "what it’s worth"; trend trading pinpoints entry/exit timing—telling us "when to act." Only by combining both can investors confidently buy when prices are cheap and stay disciplined when sentiment runs hot. 2. Using value investing to define the valuation range, and trend to determine entry/exit points Step 1: Use value investing to draw the "valuation range" The core of value investing is valuation—not requiring precision to the decimal point, but demanding a reasonable range. Common methods include: (1) Absolute valuation (Discounted Cash Flow): Estimate how much the company will earn in the future and discount those earnings back to present value. This yields a rough intrinsic value range—for example, "this company is worth ¥80–¥120."

In this recent upswing, what exactly is quantitative CTA strategy earning money from?

When prices rise continuously, go long; when they fall continuously, try shorting. It does not require predicting where crude oil, gold, or black commodities will ultimately peak—it only needs to follow the trend once it emerges. The smoother and more persistent the trend, the easier it is for models to profit; conversely, choppy, directionally erratic markets increase the likelihood of repeated stop-losses. Indeed, recent commodity market performance illustrates this well: many instruments have exhibited clean, sustained trends—and quant CTA strategies have captured these opportunities precisely because time-series momentum factors successfully detected those trend signals. Beyond judging the direction of individual instruments, another class of factors compares relative strength across different instruments. Some instruments keep rallying while others visibly weaken; models thus favor going long the strong ones and shorting the weak ones—this is known as cross-sectional momentum. Such factors thrive not when all commodities move uniformly upward, but rather when clear divergence emerges across the market. Recently, sectors such as energy chemicals, precious metals, and non-ferrous metals have shown markedly divergent performance—the greater the disparity in relative strength among instruments, the more opportunities cross-sectional models can exploit. That said, the most prominent contributor lately has been volatility-based factors. When we previously assessed whether CTA strategies were viable, market volatility was always a key consideration—because it truly is decisive for CTA performance. Yet it would be inaccurate to oversimplify this as "the higher the volatility, the more CTA earns." A more precise description is: when prices break out of prolonged sideways consolidation and enter an expanding phase, models based on trend-following, breakout, and volatility shifts become far better at identifying robust signals. For instance, if prices oscillate repeatedly within a narrow range for an extended period, models tend to remain cautious; only after prices break decisively beyond that range—and sustain the move—do certain models gradually initiate or adjust positions. Volume and open interest may serve as auxiliary inputs for some models, but not all quantitative CTA strategies rely on them—and surging volume alone cannot guarantee trend validity. Thus, the recent strong performance of quantitative CTA appears to stem from a confluence of favorable conditions: several instruments developed clear trends; inter-instrument divergence widened; and increased volatility provided more actionable trading space for models. Nonetheless, this does not mean every factor is profitable. Factors such as term structure and skewness are still generating losses. Consequently, different managers allocate varying weights to these factors, leading to potentially wide dispersion in product net asset value (NAV) performance. More importantly, even the top-performing factors this year did not rise steadily. In other words, even if cumulative returns look solid overall, significant drawdowns may have occurred along the way—and future performance remains uncertain.

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