From One Candle to the Full Cycle

Module 1 · Lesson 4

Buy Where People Stop Out

在别人被止损的地方买

Enter right after weak hands are flushed — buy the reclaim of a shakeout, not the falling knife.

This lesson has two gears. Core = what you MUST know to start today. Mastery = the deeper "why" for when you're ready. Beginners: do Core first.

Why this matters

The best place to buy is the moment the last scared seller has just sold — because then there is no one left to sell.

Fluxus: "I know this shape so well because so many stocks flash it right before they run: a dip that comes straight back. That tells you there's a bid underneath. It can't fall — so the only way left is up."

Module 1 note: This lesson uses the word "buy," but you are still training your eye to recognize the undercut-and-rally shape. No real trades yet. Exact entries, stops, and sizing come in Module 2 (Lessons 10-14, where URAR returns as a full setup). For now: recognize, drill, repeat.

Weak hands put their stops in obvious places: just under support, just under yesterday's low. Price dips just below those spots, triggers the stops, they sell in a panic — and then, with the sellers flushed out, it reverses and rallies. That flush is your entry. You are not catching a falling knife; you are buying the moment after the knife hits the floor and bounces.

Fluxus: "You know exactly which price hurts you. The market will go visit it. That's its job."

Fluxus: "The last drop before it runs isn't the failure. It's the launchpad. You have to hit the ground hard before you can leave it."

Core Mode

Everyone starts here

L4.1The shakeout: fear hands over shares

Buy the reclaim of a shakeout — the "undercut & rally." Three steps:

  1. Find the obvious level. A clear support (a price where price has repeatedly stopped falling) or a recent swing low (an obvious dip on the chart) that everyone can see. Stops (stop-loss orders — pre-placed automatic sell orders under a low that limit a losing trade) cluster just below it.
  2. Watch the undercut. Price pokes below the level — weak hands get stopped out and sell. It looks awful.
  3. Buy the reclaim. Price closes back above the level. The flush is done; that reclaim is your trigger. Risk = just under the undercut low.

Undercut → reclaim → enter. The scary dip is the feature, not the bug.

One trap to kill now

This is NOT bottom-fishing / catching a knife. The difference is one word: reclaim. Buying the drop while it's droppingafter it undercuts and closes back above the level is a shakeout entry. No reclaim, no trade.

One real one before anything else. SPY, August 2024: the level everyone watched, the ugly poke below it, the close back above — and the stop a few cents under the flush low. Every rule in this lesson is just this picture, written out.

Fig. L4-1
Fig. L4-1 The real thing: SPY, August 2024 — the level, the undercut, the reclaim, the stop, with the actual prices.

① the undercut · ② the reclaim close = the trigger · ③ what followed

L4.2The Core Drill

Shakeout-Spotting Drill

  1. Daily charts, indicators off. Mark obvious supports and recent swing lows.
  2. Hunt for the pattern: a poke below the level, then a close back above. Say out loud: "Undercut… reclaim… entry." or "Undercut, no reclaim — knife, skip."
  3. Start at 8 shakeouts a day, work up to 15 — for 5 days. Train yourself to want the dip instead of fearing it.
Undercut & Rally — the trade is the reclaim, not the dipobvious support — everyone sees itstops sit just under here1 · price pokes below -> stops fire2 · close back ABOVE the level = the trigger3 · your stop: just under the undercut lowNo reclaim, no trade. The dip alone is a falling knife.
Fig. L4-2 Undercut & rally: price pokes below an obvious support (stops triggered), then closes back above it; entry marked at reclaim, stop just under the undercut low.

Mastery Mode

Come back when Core is reflex

L4.3Markets hunt liquidity

Stops are resting orders — pending sells sitting just below obvious lows, waiting to be filled. To a big player, that cluster is a pool of free liquidity (orders waiting to be filled — the "fuel" any big buyer needs to fill a large order without moving price too much). A dip below support is often not weakness at all — it's the market reaching down to grab the fuel it needs, then turning. Price goes to where the orders are.

Where the stops are is where the liquidity isunder the obvious lowunder the round numberunder the rising averagea big buyer needs sellers. Those clusters ARE the sellers.Price is not hunting you personally. It is going where the fills are.
Fig. L4-3 A liquidity map: the three bands where stops cluster, and price travelling into them.

This is the deepest read: the undercut-and-rally is two expectations failing back to back.

Where shakeouts live

In a range, shakeouts happen at the lows of the range (bear traps before the bounce). In an uptrend, they happen at pullback lows — the trend shakes out weak holders before continuing. Same mechanism, both phases.

Where shakeouts live — two addresses, one mechanismAT A RANGE LOWstops pile under the obvious floorON A TREND PULLBACKstops pile under the rising averageSame trade both times: the poke fires the stops, the reclaim is your entry.
Fig. L4-4 Two addresses for the same mechanism: a range low, and a trend pullback into a rising average.

The words worth keeping from this lesson live in the M1 vocabulary table — L1.4.

A real hunt, start to finish. AAPL spent February and March 2024 making obvious lows in the 167-168 area — two months of resting stops. April 19 swept them at 162, and the market spent the next three months going the other way.

Fig. L4-5
Fig. L4-5 AAPL 2024: two months of obvious lows, one sweep, then the other direction.

① two months of obvious lows = a pool of resting stops · ② the sweep · ③ the other direction

L4.4The reclaim is the trigger; the undercut is the risk

L4.1 gave you the trigger and the stop. What this section adds is the risk logic: the undercut already flushed the sellers, so the trade is wrong the moment that low trades again — which is what makes the stop both tight and honest.

Not a flip-flop: if you were long earlier and got stopped on the undercut, then the price reclaims and you re-buy — this is not a flip-flop, because it's a brand-new trade judged independently by L4's trigger. Flip-flop = an emotional reversal on the same trade because you were wrong. This is a new trade on new evidence.

No reclaim, no trade — the same dip, the other endingTHE TRADEcloses back above -> enterTHE KNIFEnever closes back above -> it is still fallingThe dip is not the signal. The close back above the level is the signal.
Fig. L4-6 The same dip with two endings: closes back above (the trade) versus never reclaims (the knife).

L4.5The precise mechanical rules

Walk the SPY case with numbers, and the rules write themselves. The level was the August shelf low; the undercut poked about 3.5% below it; the reclaim close was the trigger; the stop sat just under the flush low. That is the whole machine:

Now the advanced traps — each one measured.

The setup works. Two of the numbers around it did not.1498 undercut-and-rally events · 24 large-cap US names · 2015-2026 · stop under the undercut low, 25 sessionsexpectancy+0.594Rpositive — the setup earns its placemedian trade-1.0Rmost of them stop out; the winners carry itwin rate29.1%the undercut low WAS revisited69.0%the lesson said it should not be — it is, seven times in tenentry risk (median)2.7%tighter than the 3-6% the lesson quotesreached 2R, then stopped out anyway35.2%of the ones that got there — this is the case for taking a third at 2R
Fig. L4-7 What 1,498 of these actually did — the setup confirmed, two of its numbers corrected.

L4.6Four more hunts, four different endings

The pattern is everywhere once you know it — and the rule matters most in the case where it fails.

Fig. L4-8
Fig. L4-8 AMD, October 2023: the textbook one — a 1.4% poke under two months of lows, reclaim, then +60% into January.

① the poke · ② the reclaim · ③ January

Fig. L4-9
Fig. L4-9 QQQ, October 2023: the whole index runs the same play — a 2.6% undercut, reclaim, then a one-way quarter.

① the undercut · ② the reclaim · ③ a one-way quarter

Fig. L4-10
Fig. L4-10 SPY, April 2025: capitulation scale — 12% below the level. The depth changes the sizing, never the trigger: you still wait for the reclaim.

① capitulation, 12% below the level · ② the reclaim — still the only trigger · ③ repaired

Fig. L4-11
Fig. L4-11 INTC, 2024: the knife. It broke the level in August and never closed back above it. "No reclaim, no trade" is not a nicety — it is the whole defence.

① the break · ② the rally that never closes back above · ③ lower still — the rule was the whole defence

L4.7The Mastery Drill

Reclaim Journal

  1. Find 12 undercut-and-rally setups. For each mark: the obvious level, where stops likely sat, the undercut low, the reclaim trigger, the risk.
  2. Tag whether volume spiked on the undercut (panic) and again on the reclaim (demand).
  3. Reveal outcome + measure: how tight was the risk vs the move that followed (the R multiple — R = one unit of risk you took; a 3R winner = you made 3× what you were risking

Beginner Traps

1. Catching the knife (no reclaim). Buying the drop mid-fall is bottom-fishing self-harm, not a shakeout entry. Wait for the close back above. 2. Buying AT the obvious level. If you buy right on everyone's stop, you become the fuel. Let the undercut happen first. 3. Moving your stop down to avoid the shake. Widening your stop so you "don't get shaken out" defeats the entire method and blows the tight risk.

TL;DR

Extended Reading (optional)

Not required. Skip until Core is reflex.