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Learning from a Market Wizard: Swinging Stocks in the Style of Mark Minervini
Do you have a set of criteria that has to be met before you consider a stock?
Just looking at the stocks you hold they don't seem to meet what I think is Minervini criteria.
MU for instance, although it made a new high didn't do so on above average volume. What is encouraging is the gap up on the 1st that did move with above average volume. I believe Minervini refers to that as a pocket pivot.
Did you enter as soon as the high was broken or just because it was broken?
"The days when I keep my gratitude higher than my expectations, I have really good days" RW Hubbard
Yes. I currently take actions at points that meet my interpretation of either Minervini's or Kristjan Kullamaggie's approach. Something that amazes me is how differently two people can interpret the same methodology - I chat with three other traders all using the same approach (O'Neil/Minervini/Kullamaggie) and while our watchlists and portfolios often have some overlap there is a tremendous variety between our four individual interpretations of the methodologies we've learned.
Having read Minervini's books and studied some of his past trades I have a base knowledge of how he makes decisions yet sometimes he'll tweet out a trade that leaves me scratching my head... always more to be learned.
Anyway MU: I'd agree, no convincing breakout yet due to the lack of above average volume and range. Looking great as a setup though and I think it's something Mark would definitely look at. Semis are a strong leading sector. Volatility (measured by daily range) has declined persistently from the left to the right side of the base. Volume has done the same.
A break above the horizontal line (new highs) on volume would be a decisive entry point for me... if that doesn't happen early next week I'll cut the position.
Another data point that has been difficult for me to reconcile: in backtesting setups and looking at historical trades (O'Neil, Minervini, et al.) I do notice that high volume on the day of breakout seems to be correlated with trade outcome, yet in my live trading (100's of trades now) I don't observe the same correlation. In fact volume on day of breakout has had nearly zero correlation to the outcomes of my trades. I'm always more inclined to believe live data vs. backtest yet I doubt that the conventional wisdom is wrong. My best explanation is that volume in the underlying used to be more important when less notional volume was transacted in derivatives. Options allow large players to express significant outright positions without leaving a footprint on the underlying's volume histogram. Savvy traders may look at options chain volume but it's more complicated to collect and analyze that data then it is to look at a simple chart of the underlying. This explanation fits what I've observed: volume was more important in the past and seems to be less important now. So where that leaves me is thinking that on non-optionable securities I should care more about volume, and on optionable securities I should either go whole-hog and analyze the entire options chain OR just not weight volume heavily in my analysis/approach.
I entered with a buy stop .01 above the previous high which is my customary opening order for this style of trading.
Great questions and I hope my rambling answers made some sense!
Coming into Friday I was quite excited by the three tight days and flag forming at all time highs on the DJIA.
djx
While I prefer trading stocks with bigger range I'll happily trade great setups in 'boring' stocks if they seem to be leading the market. GE was one of my favored setups within the DJIA universe so I bought as it traded above the highs of this tight multi day range and final contraction in the VCP (volatility contraction pivot) pattern. I sold it as it sliced back through the pivot late morning after making a nice advance to finance my new position in TIGR. I'm comfortable with my current exposure (~80-90%) so for every new position I have to cut or reduce an existing position.
ge
Huge advance in TIGR during the first two months of 2021. Pullback since then that is just beginning to show signs of bottoming. Strong advance last Thursday on volume (marked with black lines on the candle and volume bar), and then the formation of a "cheat" pattern: one of Minervini's signatures. Not much follow-through from my buy point (horizontal black line), but looking promising. "Cheats" offer less confirmation but commensurate risk:reward.
Bought SI and RIOT (both bitcoin exposure) as they seemed to be the most attractive setups today.
si
riot
Both have that same signature VCP / Pennant pattern. They looked nice early on but closed weak. Hoping for some follow-through this week because this market has been choppy and rife with failed breakouts!
Do you think about 15% stoploss for SI is kind of large? For EL, it seems profit is 1.5%, and stoploss is 3%? What is the difference between VCP pivot point and Trading Range top?
15% SL on a stock with a 13.5% 50 Day Median Daily Range seems right to me. It's all relative as far as I'm concerned because the potential reward on SI is commensurately higher due to it's volatility. Looking at my stats I actually have a higher expectancy for stocks with larger daily ranges so I don't ever shy away from 'large' stops as measured in terms of percent (general) so long as the stop in terms of MDR (specific) is reasonable. In short it doesn't make sense to ignore differences in volatility between stocks. Just as applying the same strategy in all markets is usually a recipe for disaster, applying the same arbitrary stop loss % to stocks of vastly different volatilities is a recipe for disaster in my view.
I sold EL not to take profits but to free up capital to buy SI and RIOT. Because the market hasn't been terribly strong I don't want to add notional exposure to my portfolio. Working within these restraints I need to sell existing positions in order to open new positions. EL was my least favorite existing position and I liked both SI and RIOT better so I replaced EL.
I usually am referring to a few days of overlapping ranges when I say 'trading range' whereas a VCP buy point can just be a recent swing high so long as each contraction is tighter than the previous one.
What I don't see on either is a breakout to new highs on above average volume. Both closed in the bottom half of their range.
I wouldn't consider SU a Minervini stock. Too much overhead in the 23 to 25 range. Nothing new and exciting about SU that would cause investors to bail in and drive up the price.
RIOT on the other hand may be the perfect Minervini type stock. Once it get into new highs who knows where it might go.
Hope you don't mind me critiquing your trades. Just my opinion and hopefully helpful. Just started reading his book.
"The days when I keep my gratitude higher than my expectations, I have really good days" RW Hubbard
I don't mind at all! I implore you to critique as harshly as possible - I can take it and I'll thank you for making me a better trader!
I don't see anything on SU's chart either. The stock I bought yesterday was SI which, like RIOT, tracks Bitcoin with a >80% correlation over the past 100 sessions.
Also beware when reading Minervini's books that he doesn't really trade today with the exact method outlined in his books. Check out the recent trades he's shared on his twitter and you'll see very little mention of fundamentals, growth, or catalysts - in my view he's trading 99% off of price action patterns. Some of his recent trades include DECK and FDX, both of which are long past their major growth phase IMO. He also buys well below highs depending on market environment. One of his signature buy setups is the cheat: a tight range as price comes up the right side of the base but is still off of highs. Kristjan Kullamaggie, my other biggest influence, almost always buys lower than base highs as price is breaking out of a tight range.
