Chan Theory Advanced: Strokes, Segments, Hubs, and Trend Types — A Complete Technical Analysis System

What Is Chan Theory?

Chan Theory (缠中说禅 Theory) was proposed by the blogger “缠中说禅” (possibly Li Biao) between 2006–2008, and is currently one of the most popular technical analysis frameworks in China.

Chan Theory’s core idea: any price movement can be completely decomposed using a recursive structure of strokes, segments, hubs, and trend types. No exceptions.

The Chan Theory introductory article covered basic concepts (fractals, strokes, segments). This article covers advanced concepts.

Stroke Definition (Strict)

Top Fractal and Bottom Fractal

• Top fractal: Three K-lines where the middle one’s high and low are both higher than the left and right → top
• Bottom fractal: Three K-lines where the middle one’s high and low are both lower than the left and right → bottom

Stroke Composition

One stroke = from top fractal to bottom fractal (or bottom fractal to top fractal), with at least 5 K-lines in between (including the 3 fractal K-lines + at least 1 interval K-line between them).

Stroke direction:

• Bottom fractal → top fractal = upward stroke
• Top fractal → bottom fractal = downward stroke

Stroke Destruction

After a new stroke is established, the previous stroke is confirmed. If the new stroke’s conditions are destroyed by subsequent K-lines (e.g., an upward stroke producing a new bottom fractal lower than the previous bottom fractal), the new stroke isn’t established, and the prior stroke continues.

Segments

Segment Definition

One segment = at least 3 strokes, with overlapping price zones among these 3 strokes.

Upward segment: upward stroke + downward stroke + upward stroke → 3rd stroke high exceeds 1st stroke high Downward segment: downward stroke + upward stroke + downward stroke → 3rd stroke low falls below 1st stroke low

Segment Characteristic Sequence

Simplify all stroke directions within a segment into a characteristic sequence → use the characteristic sequence’s fractals to judge whether the segment has ended.

Upward segment end condition: characteristic sequence shows top fractal → segment may end Downward segment end condition: characteristic sequence shows bottom fractal → segment may end

Hubs

Hub Definition

A hub = the overlapping price zone of at least 3 segments.

Specifically:

• Segment 1: high H1, low L1
• Segment 2: high H2, low L2
• Segment 3: high H3, low L3
• Hub range = the overlapping portion of [min(H1,H2,H3), max(L1,L2,L3)]

A hub represents price oscillating repeatedly within a range → a hub is the quantitative definition of consolidation.

Hub Levels

Different timeframe hubs have different levels:

• 1-minute hub → minimum level
• 5-minute hub → overlapping of 3 parts of 1-minute trends
• 30-minute hub → overlapping of 3 parts of 5-minute trends
• Daily hub → overlapping of 3 parts of 30-minute trends

Higher-level hubs = combinations of lower-level trends. This is Chan Theory’s recursive structure.

Trend Types

Rising Trend

Two same-level hubs, with the later hub’s high exceeding the earlier one → rising trend.

Characteristics:

• Hub 1 → Hub 2 → Hub 2 higher than Hub 1 → rising
• The connecting segments between hubs are called “trend connecting segments”

Falling Trend

Two same-level hubs, with the later hub’s low below the earlier one → falling trend.

Consolidation Trend

Only one same-level hub → price oscillates within the hub range → consolidation.

Trends Must Complete

Chan Theory’s core theorem: every trend must complete (perfect).

A rising trend must have a second hub → a falling trend must have a second hub → a consolidation trend has only one hub.

After completion → a trend must transform into another type → after a rising trend ends, it may convert to falling or consolidation.

Practical Operations

First-Type Buy/Sell Points

• First-type buy point: After the last hub in a falling trend, price breaks below the hub’s lower boundary and then shows a bottom fractal → trend may reverse → buy
• First-type sell point: After the last hub in a rising trend, price breaks above the hub’s upper boundary and then shows a top fractal → trend may reverse → sell

Second-Type Buy/Sell Points

• Second-type buy point: After the first-type buy point is confirmed, price pulls back to the hub’s lower boundary → doesn’t break it → buy again
• Second-type sell point: After the first-type sell point is confirmed, price pulls back to the hub’s upper boundary → doesn’t break it → sell again

Third-Type Buy/Sell Points

• Third-type buy point: In a rising trend, price retraces but doesn’t enter the previous hub → buy (add position)
• Third-type sell point: In a falling trend, price bounces but doesn’t enter the previous hub → sell (add position)

Common Misconceptions

1. Chan Theory is 100% accurate — No! Chan Theory is an analytical framework; buy/sell points require experiential judgment
2. More hubs = better — Chan Theory only needs to identify the most recent hub to determine trend type
3. Stroke definition is too strict — Strict definitions eliminate ambiguity; in practice, you can适度 relax
4. Chan Theory doesn’t suit crypto — Chan Theory applies to any market with K-line charts, including crypto

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Chan Theory advanced is a complete price structure analysis system: strokes → segments → hubs → trend types as a recursive structure. Hubs are the quantitative definition of consolidation; trend types are classified as rising/falling/consolidation. Practical core: three types of buy/sell points (trend reversal points + pullback confirmation points + hub non-reentry points).