Mark Minervini On Staying Patient And Waiting For The Market To Come To You

Mark Minervini has written three fantastic trading books that I highly recommend.  I’ve been going back through the last two chapters in Trade Like A Stock Market Wizard and found a few passages that highlight some of the things I’ve been talking about recently:  raising cash when the market gets unstable and only trading when proper setups show up.

“Undisciplined players looking for “action” always show up at the poker tables.  The stock market is no different except that most stock market investors are even less disciplined than most poker players.  The Achilles’ heel of most gamblers and speculators is the desire to play every hand, a common human weakness that allows impatience to override good judgment.”

One concept that new traders have a hard time with (I know I did before I gained experience) is knowing when to turn it off.  Especially when you have a good winning streak the natural inclination is to want to keep it going and even increase your activity and position size.  The problem though is the market goes back and forth between trending and consolidating and moving sideways.  In the choppy periods a trend following approach like Stage Analysis can get chopped up, and a string of losses can occur if you try and trade sub-optimal setups instead of patiently waiting for the next big opportunity.

“In the stock market, you have the luxury of being able to stay on the sidelines, free of charge, observing and waiting for the most opportune moment to wager.  You get to see the market’s “cards” before you bet, free of charge.  This is a wonderful advantage, yet few exploit it.”

This is exactly the idea of waiting until you see the Stage 2 breakout show up in the charts, and then pouncing on it.  If you don’t see any good potential Stage 2 breakouts or continuation buys, then there’s nothing to do.  It’s as simple as that.

And if you get upset about missing a trade, don’t because another trade will setup at some point in the future, probably sooner than you think.  The worst thing you can do is chase a trade you missed and then have that capital tied up in a potential loss while another good opportunity shows up.

“You don’t have to involve yourself in every market movement. In fact, you should not attempt to. Be an exacting opportunist.  Be selective and pick your entry spots very carefully.  Wait until the probabilities are stacked in your favor before you act.  With patience and discipline, you can profit from market opponents who are less disciplined and less capable than you are.  While you do nothing, less skilled opponents are laying the groundwork for your success, and you get to wait and watch for free.  What a deal!”

We know in Stage Analysis that the Stage 1 bases and Stage 3 tops lay the groundwork for the next up or down trending move in the markets.  If you find yourself buying too early in Stage 1 before a real breakout occurs you are doing what Minervini is talking about in the final quote above.  The probabilities are not in your favor until you remain patient and wait for the ideal buy point.

I highly recommend all three of Mark Minervini’s books.  I find myself going back through them from time to time since there’s a lot of good material in them covering all aspects of trading.

Checkout my new Stage Analysis Screening Tool at: http://screener.nextbigtrade.com

Checkout my trading videos on Youtube

Twitter: @nextbigtrade

The original article and much more can be found at: http://www.nextbigtrade.com

The views and opinions expressed are for informational purposes only, and should not be considered as investment advice. Please see the disclaimer.

Going To Cash And Position Sizing In Volatile Markets

Few people on the Internet that discuss trading talk about going to cash and staying out of the markets for an extended period of time.  But the problem is the market doesn’t always trend higher with no volatility like it did from the election in November 2016 until now.  Increased volatility occurs from time to time and the best way to deal with it in my opinion is to raise cash and reduce position sizes.  It’s much easier to manage that than try and get fancy with hedging and putting on even more positions just to manage existing positions.

Three ways I use the Stage Analysis Screener to get a health gauge of the market are the following:

  • Get a comparison of the number of stocks breaking out vs. topping out and moving lower
  • Develop a list of sectors leading the market
  • Develop a list of stocks I want to trade in sectors that are leading the market

When I look for stocks I want to get a general sense that more money is out there buying stocks than selling stocks so more stocks should be moving higher than breaking down.  After that I want to find the strongest sectors where the big money is flowing, and by looking at the charts of stocks in those sectors I want to find the best breakout candidates.  Usually when the market starts to weaken it gets a lot harder to do those things which makes it easy to tell the market is weakening and it’s time to raise cash.

When you raise cash and reduce position sizes you reduce the affect of volatility on your positions which allows you to hold those positions through big pullbacks when they occur in a volatile market.  Otherwise you’ll be forced to sell positions at a loss if you stick to your risk management and this can happen over and over again if the market goes into a choppy sideways trading range.

Source: LPL Research

It’s essentially a slam dunk that the market will be more volatile this year than it was in 2017 if you look at the graphic above.  Another recent tidbit I saw today was that the pullback today was the first 0.6% loss since September 5th of 2017.  Incredible lack of volatility for multiple months which is what contributed to the massive gains that occurred for the last four months of 2017.

As a trader using a trend following process such as Stage Analysis my job isn’t to go out and find stocks to trade.  I let the trades come to me by surveying the market and finding stocks that fit my criteria of early Stage 2 explosive uptrends.  If I can’t find those stocks then it’s time to raise cash and get defensive and wait for a better market.  That’s exactly what I’ve done recently by taking the heaviest cash position I’ve had in over a year and I’ll stay defensive until I see leadership sectors forming again and high quality setups to trade.

Checkout my new Stage Analysis Screening Tool at: http://screener.nextbigtrade.com

Checkout my trading videos on Youtube

Twitter: @nextbigtrade

The original article and much more can be found at: http://www.nextbigtrade.com

The views and opinions expressed are for informational purposes only, and should not be considered as investment advice. Please see the disclaimer.

Thank You And Happy New Year!

Here’s to wishing you and yours a great 2018 and a prosperous start to a new trading year!  I would like to thank a number of you who continue to support my work:

  • Thank you for the gracious donations many of you have made supporting my work!  Everything I’ve done on this website so far has been totally free including the Stage Analysis Screener and all the content I’ve created.  It’s possible that will change at some point in the future, but until then I sincerely appreciate the support.
  • Thank you for the opportunities to interview on Financial Sense, Palisade Radio, and The Next Bull Market Move and for featuring my work on your respective sites.
  • Thank you to all other websites who feature my work and who have linked to content on my site.
  • Thank you to all those who have left feedback on my website, YouTube videos, through e-mail, or re-tweeting my work on Twitter.  I’ve heard from people all over the world and continue to get a ton of great feedback!

I have a lot of ideas for new content on the site in 2018 so stay tuned!  As always I’ll be taking a look at the markets from a Stage Analysis perspective, if you haven’t read Stan Weinstein’s book yet now is a good time to get started!

Thoughts On The Energy Sector

A reader asked me today what I thought of the energy sector and if I would look at it using Stage Analysis.  I have been noticing some energy stocks appearing on my stock scans, and that hasn’t happened in quite a long time so that’s a positive.  But here’s what I’m not seeing that hasn’t made me want to load up on energy stocks yet:

  1. Large number of energy stocks across the sector breaking out to new highs on big increases in volume
  2. Energy stocks outperforming the S&P 500 and other sectors
  3. Crude oil in an uptrend
  4. Commodities as a group in an uptrend (I tend to use the GCC ETF to view that)

Here’s a longer term chart of XLE.  A couple of things to note on this chart.  I’d rather see a nice long base here to launch into a new bull market, but all we have so far is a bounce higher from the 2016 bottom.  I could see energy stocks basing for a while longer here and digesting the previous bear market.  I want to see XLE outperforming the $SPX on the middle section of the chart too, and that’s clearly not the case.  If you look at semiconductors or biotech (SMH or XBI) you’ll see the exact opposite of what you see here and that’s why I like those sectors right now.

I actually did recently trade one energy stock WTI because I liked the chart but I didn’t trade it as a sustainable uptrend.  Maybe I’ll be wrong and energy stocks have bottomed here but I don’t see that yet in the charts.  On this chart of WTI though you can see how we have a nice Stage 1 base that it exploded higher off from on massive volume.  But notice how it did the same thing in late 2016 only to turn out to be a fake rally that failed.  I wouldn’t be surprised if the same thing happens here unless we see more strength across the sector.

I see the same thing in energy in other commodity sectors like gold stocks.  A few stocks breaking out higher but that tends to be the exception more than the rule.  That was why I didn’t think the August to September rally in gold was going to lead to a new rally as well, I saw a lot of gold stocks acting terribly when they should have been gearing up for a big move.

Checkout my new Stage Analysis Screening Tool at: http://screener.nextbigtrade.com

Twitter: @nextbigtrade

The original article and much more can be found at: http://www.nextbigtrade.com

The views and opinions expressed are for informational purposes only, and should not be considered as investment advice. Please see the disclaimer.

On The Lookout For A Bear Market

There’s a lot of doomsday prognostications in stuff I’m reading about the markets tonight but the bottom line is you have to ignore what pretty much everyone says about the markets, and just follow price.  Especially when a bear market starts because downtrends fuel all kinds of crazy speculation on where markets might go, and whether you should “buy the dip” or panic and run for the hills.  Nobody knows the future so the best course of action is to have a plan and execute it as the market action unfolds.

The major market averages are all in Stage 3 now with the Dow Jones rolling into a Stage 4 according to my Stage Analysis screening tool.

http://screener.nextbigtrade.com/#/sectors/U.S.%20Markets

Less than 30% of stocks in the NYSE are in Stage 2 now.  That’s how weak the markets have become after last weeks’ carnage.  Notice that the Biotech sector has barely 50% of stocks now in a Stage 2, and Biotech was one of the leading sectors in the market.

http://screener.nextbigtrade.com/#/markets

The U.S. dollar is in Stage 3 now which is potentially bullish for gold which has rallied hard off of its recent bottom.  Gold is getting closer to testing it’s 30 week moving average now, even though commodities as a whole are still very weak and are in Stage 4 bear markets.

http://screener.nextbigtrade.com/#/sectors/Currencies