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Learning from a Market Wizard: Swinging Stocks in the Style of Mark Minervini
This year in my USIC account I've been keeping track of what my trade results would have been had I used a tighter LOD stop instead of my standard stop at the recent swing low.
My takeaway here is that the majority of my winning trades hit neither the LOD nor swing low stop. Trades that hit LOD stop are quite likely to hit swing low stop prior to a reasonable target being achieved.
It appears that a LOD stop has been more optimal for this dataset and I think I'll be using a LOD stop moving forward. The idea makes sense to me from a capital efficiency perspective as well. Quickly kill losers and put that money to work in something new breaking out.
ATUS gap up + earnings announcement after the close today = sell it all
Bought LAZR w/ LOD stop
Tightened my stop on AI after the opening dip and recovery - stopped out
Bought 1/10 RIDE (things don't seem to be working at this point + market volatility increasing)
Stopped on GH
Stopped on RIDE
Tightened stop on INFO ala AI and was stopped out as well EOD RIDE closed strong, bought 1/10 again
Seems that my recent breakouts sized up to full positions have not been working - almost a perfect 100% loss rate. Time to size back down.
Sizing down until equity curve begins to make progress again. The chart below illustrates my effort to increase exposure when things are working and scale back when conditions are tough.
General Similarities between Minervini and Kristjan Approach:
-Trade stocks displaying relative strength (recent outperformance, hot sector, etc)
-Buy stocks as they break out of a range
-Use a tight stop loss
-Sell some into strength
Specific Differences:
-Minervini uses his trend template to scan ( Minervini Private Access) while Kris scans for the stocks that have made the largest % advances over the past 1,3, and 6 months that also satisfy liquidity requirements (relative to account size)
-Minervini has a handful of very specific setups or base patterns from which a stock can be bought on a breakout. Kris has variations on one simple setup that can but doesn't necessarily satisfy Minervini's VCP criteria.
-Minervini typically uses a stop at the recent swing low while Kris almost always uses a stop at the low of day at the time of breakout
-Minervini sells some at a multiple of his risk while Kris typically begins scaling out on days 3-5 after a successful breakout
Generational Evolution:
I've found that breakout/momentum swingtrading has continually evolved over the past century. Many of the original concepts discussed by Livermore and Darvas are still relevant today - these storied traders laid the foundation from which the next generation built upon. The human race continually seeks progress - evolution - improvement. Trading is no different from any other pursuit in this general sense. Minervini's approach clicked most with me prior to discovering Kris' material. I believe that there are many ways to skin this cat and that the job of the aspiring trader is to seek the process most efficient for themselves. With this in mind I've now traded in Kristjan's style for a month, made 56 trades, and have collected stats from which to compare to the results of my Minervini-style trading during the same time period.
Equity Curves and Exposures
Notably better linearity in the Kris equity curve. Also notable that, as of now, net returns are approximately equivalent while avg exposure over the sample has been only 15% (Kris) vs. 45% (Minervini). With 1/3 the exposure I've achieved the same returns (superior if considering drawdown as risk metric).
Closed trade stats paint the same picture.
Closed Trade Stats
Expectancy %: +.20% vs. +5.37%
I don't believe that Kristjan's method of trading is definitively 'better' than Minervini's by any means. I suspect that Kris' style has outperformed relative to Minervini's in large part because of stock selection. Median mkt cap of stocks traded has been $10.5B (MM) vs. $650M (KK). Small caps (highly speculative companies in particular) have outperformed mid and large caps by a huge margin so far this year. Russell-2000 up ~15.5% YTD while the S&P500 is up only ~4.5%. In a market led by large caps I'd expect Minervini's style to perform better but I'm interested to see firsthand if that hypothesis proves to be true once the regime shifts.
Given the compelling evidence and the current market conditions I have decided to begin trading Kristjan's style in my USIC account beginning this week.
I'm out of town for a ski trip most of this coming week so my trading activity will be quite minimal as I enjoy some treeskiing - fresh powder too with any luck.
Lots of failed breakouts in the names I'm following closely. In combination with the fact that indexes have made a sizable advance recently, treasuries bonds have gotten killed, and few buyable setups, I am anticipating a correction or some sideways action at the least. Financials were the one bright spot today and I bought both DFS and SYF with 1/10 size positions.
You guys know I love analyzing trade statistics. I ran a test on my 2020 trades and bucketed into two categories: Companies I know nothing about (purely technical setup) vs. companies whose products/service I am at least aware of. Ex: TGTX has therapeutics in their name but I don't know anything else about the company vs. PINS, a site I've been on and am familiar with.
I have two possible explanations
1) I subconsciously manage positions differently in companies I understand.
2) During the dataset 'Name Brand' stocks performed better at large.
Either way I think I'm going to focus on stocks that I understand moving forward!
It's been quiet in my account. As the indexes correct few stocks break out from proper bases. Still have only one of my original positions open - 1/4 OZON. I've been trying a few other trades with small size but most have resulted in stop outs which is a great indicator to remain cautious.
In the downtime I've been working on testing one very simple setup (ATH breakout) on some of the best stocks from the past fifty years (AAPL, MSFT, XOM, AMZN, etc) to determine optimal stop placement and profit-taking criteria. In addition to the spreadsheet I intend to build a visual reference chartbook with annotated screenshots of the best 'textbook' setups. There is a ton of nuance in trading but for this first research endeavor I wanted to stick to something involving as little discretion as possible. Stock XYZ breaks out to new ATH's and the low point of the base was higher than the previous ATH breakout point. Preference to stocks outperforming relative to the indexes.
Example: XOM
2004.7.26 XOM 1
2004.7.26 XOM 2
2004.7.26 XOM 3
CAN broke out from it's IPO base a couple weeks ago, and today broke out from the first continuation base: a textbook setup in all ways I've yet identified.
Took my first larger position size since mid-February today. Bullish clues: SPX had a decent thrust last Friday and has continued to follow through at least somewhat since. DJIA has been the clear winner of the indexes recently thanks to the prominent strength in Energy (Oil & Gas) and Financials. I've just noticed some recent breakouts, particularly in the aforementioned sectors, beginning to hold higher. WFC has been building a solid base for the past 2.5 weeks. Today it broke out to new highs on decent volume, leading the big banks and the financial sector at large. If this trade works and more setups begin to come out of the woodwork I will be looking to increase my exposure.
