Minervini and Weinstein Strategies & Vocab. Flashcards
Two conditions required to consider stock a potential buy according to “Mindful Trader” strategy
- Price needs to be above the middle line (20 dma) for the prior 10 trading days (until it hits that middle line).
- Price needs to have pierced the upper line of the Keltner Channel during that time.
How to determine entry and exit points of swing trade according to Mindful Trader strategy?
- Entry is on the pullback to the middle line (20 dma)
- Exits are set at 2x ATR (Average True Range) added or subtracted from the entry price, OR at 9 days after the initial buy if neither ATR-based price is hit.
What is ATR?
Average True Range. ATR tells you the range of a security’s price over a recent period, typically 2 weeks.
Key moving avg according to Mindful Trader Strategy?
20 day simple moving average
Basic difference between simple moving average and exponential moving average?
The EMA gives greater statistical weight to more recent closing prices. Most strategists seem to stick with the SMA.
Minervini’s criteria for determing if a stock is in a Stage 2 uptrend?
“There should always be a previous rally with an escalation in price of at least 25 to 30 percent off the 52-week low before you conclude that a stage 2 advance is under way and consider buying.”
TRANSITION TO STAGE 2 CRITERIA:
1. Stock trading above both 150 day and 200 day MA
2. 150 day MA above 200 day MA
3. 200 day MA has turned up
4. A series of higher highs and higher lows has occurred.
5. Surging volume on rallies —large up weeks on volume spikes are contrasted by low-volume pullbacks.
6. There are more up weeks on volume than down weeks on volume.
Minervini says the share price my have even doubled or triples at this point but this is often only the beginning.
How Minervini identifies stock in Stage 3?
STAGE 3: TOPPING PHASE:
Volatility increases with stock moving back and forth in wider, looser swngs. Overall price pattern may look similar to stage 2 (going higher) but with more erratic price movements.
There is usually a major price break in the stock on an increase in volume. Often, it’s the largest one-day decline since the beginning of the stage 2 advance. On a eekly chart, the stock may put in the largest weekly decline since the beginning of the move.
The stock price my undercut its 200-day moving average. Many stocks in stage 3 bounce below and above the 200-day MA several times while topping out.
The 200 day MA will lose upside momentum, flatten out, and then roll over into a downtrend.
What does Minervini mean when he refers to a “squat”?
”Sometimes a stock will break out from a pivot point only to fall back into its range and close off the day’s high. This is what I refer to as a squat. When this happens, I don’t always jump ship right away; I try to wait at least a day or two to see if the stock can stage a reversal recovery. This accommodation makes sense especially in a bull market. In some cases it can take up to ten days or longer for a recovery to occur. This is not a hard and fast rule; some may take a little longer, and some fail and stop you out. Of course, if the reversal is large enough to trigger my stop I sell. If the several causes the price to close below its 20-day moving average it lowers the probability of success…” However, as long as the price holds above my stop loss, I try to give the stock some room.” (From Trade Like a Stock Market Wizard)
What does Minervini mean when he refers to a “cheat”?
3C Pattern (Cheat):
“The cup completion cheat, or 3C, is a continuation pattern; it is the earliest point at which you should attempt to buy a stock. … [To paraphrase, a “cheat” is a narrow, horizontal move that forms beneath what would be the upper third of the cup, exhibiting a volume contraction like what you’d want in the handle.] The cheat area is the earliest point at which I attempt to trade a cup pattern. … This pause presents an opportunity to enter the trade at the earliest point, perhaps not always with your entire position, but you can lower your average cost basis by expelling cheat areas to scale into trades. … To qualify, the stock should have already moved up by at least 25 to 200%—and in some cases by 200 or 300 percent—during the previous 3 to 36 months of trading. The stock should also be trading above its upwardly trending 200-day moving average (provided that 200 days of trading in the stock has occurred). The pattern can form in as few as 3 weeks to as many as 45 weeks (most are 7 to 25 weeks in duration). The correction from peak to low point varies from 15 to 20 percent to 35 to 40 percent in some cases and as much as 50 percent, depending on the general market conditions. … It is common for a cheat setup to develop during a general market correction.” The “plateau area (the cheat)… should be contained within 5 percent to 10 percent from high point to low point. The optimum situation is to have the cheat drift down to where the price drops below a prior low point, creating a shakeout, exactly the same thing you would want to see during the formation of a handle in a cup-with-handle pattern.” (From Trade Like a Stock Market Wizard)
What were Jesse Livermore’s conditions for entering a trading long?
Jesse Livermore “had a system of buying and selling when a stock changed direction, but only if the stock followed through. … By waiting for a stock’s price to confirm a new uptrend, he avoided being whipsawed on every minor countertrend rally. Instead, Livermore waited for the trend to be broken and two reactionary pullbacks to take place; then, as the stock traded above the second reaction high, he would enter a trade. This was Livermore’s version of the turn.” (qtd. in Minervini, “Trade Like a Stock Market Wizard”)
When does “superperformance” usually occur, according to Minervini?
during the first 10 years after the IPO
Four tactics that Minervini says are key to his success
- I wait for easy dollars while the amateurs fight for hard pennies.
- I get aggressive when amateurs doubt the setups.
- I take profits when amateurs get greedy and hysterical.
- I religiously manage my risk while amateurs hold losers.
Selling rules from Minervini
When in doubt, sell half.
- If a stock breaches 20-day EMA, sell half.
- - If it breaches 50-day EMA or 10% down, sell completely.
What have been the indications of the VIX for intermediate-term (12-month) US stock performance?
Interestingly, the **worst returns are when the VIX is between 20 and 30. **
Below 12 is bad and between 20 and 30 is bad.
VIX between 12 and 18 offers solidly positive returns.
When the VIX is **over 30, **one-year average returns are pretty good across the board but especially good for industrials, consumer discretionary, energy, and materials.
VIX > 35: Industrials, financials, consumer discretionary, energy
VIX > 40: Can’t really go wrong, but strongest sectors have been industrials, financials, consumer discretionary, materials, and tech.
Tech outperforms other sectors when VIX = 18 or LESS.
Tech underperforms when VIX is between 20 and 30.
3x bullish ETFs for $SPX and $NDX?
UPRO for $SPX
TQQQ for $NDX
3x bearish ETFs for $SPX and $NDX
SPXU for $SPX
SQQQ for $NDX
What is alpha?
return exceeding the market (benchmark)
