8 Keys to Superperformance with Mark Minervini and David Ryan

Guiding Rules for Trading

In this section, the speaker talks about his guiding rules for trading and how they help him avoid common mistakes.

No Forced Trades

• The speaker's first guiding rule is to avoid forced trades.

• Forced trades happen when traders feel antsy or itchy to do something in the market, leading them to take trades that they shouldn't have.

• To overcome forcing trades, traders need a system or method that works in good and bad markets. This requires discipline and filtering every idea through a set of rules.

No Big Losses

• The second guiding rule is to avoid big losses.

• Traders should never add money to losing trades or average down as it is the worst possible advice one could get.

Losers Average Losers

• The third guiding rule is "Losers average losers."

• Traders should only trade setups that they are familiar with and know what to expect. They should keep their losses as small as possible and look for the lowest risk trades possible.

Professional Trading Goals

In this section, the speaker talks about his professional trading goals and how he achieves them.

Minimal Risk, Large Gains

• Professional trading means taking minimal risk and capturing relatively large gains relative to that risk.

• The word "relative" is important because gains are relative to your risk. For example, a 5% gain may be significant for a day trader but not for a long-term investor.

Maximize Compounding

• Traders want to maximize compounding by rolling over their gains as many times as possible.

• Short-term traders will have more turnover and roll over their gains more often than long-term investors.

Be in the Market as Little as Possible

• The speaker's goal is to be in the market as little as possible.

• When he won the US Investing Championship, he was only in the market about 50% of the time. He achieved a 155% return that year by minimizing his exposure to the market.

Timing the Market

In this section, the speaker discusses how timing the market is possible by identifying patterns in successful stocks through chart analysis. The speaker also emphasizes that timing is necessary for making big returns in the market.

Identifying Patterns in Successful Stocks

• Successful stocks that are in up trends act a certain way and have defined patterns that show up over and over again.

• By studying charts, one can identify when a stock is starting to move or topping out, allowing for buying just as the move is starting.

• Charts going back to the 1930s and even earlier show that these patterns repeat themselves over time.

Timing Mechanism

• Even Warren Buffett times his trades based on fundamentals rather than charts.

• Regardless of whether one uses charts or fundamentals, timing is necessary for making consistent returns in the market.

The 50/80 Rule

• When a big market leader tops after a secular move, there's an 80% chance it will go down 50% and a 50% chance it will go down 80%.

• On average, leaders go down about 70-75%, which can result in huge losses if not timed correctly.

Overall, timing the market is possible through chart analysis and fundamental analysis. It's necessary for making consistent returns and avoiding huge losses.

The Importance of Timing in Trading

In this section, the speaker discusses the importance of timing in trading and how to maximize compounding by entering trades at the right time.

Timing is Key

• The speaker has seen many cycles where household name stocks have dropped 80-90% or gone out of business.

• The volatility contraction pattern can help determine when a stock is setting up constructively.

• By timing trades and knowing whether you're right or wrong quickly, it saves time and maximizes compounding.

• When a stock is contracting, volume usually decreases. When it breaks above the base, volume should increase. If not, there may be a problem.

Criteria for Successful Trades

• Not all patterns will work. If your criteria is sound but your trades aren't working, it could be due to a negative or hostile market.

• If you have poor criteria, you might not do well even in a great market. Check your criteria if necessary.

Conclusion

• Having solid criteria and timing trades correctly are key to successful trading.

Selling Stock and Turnover Selling stock as it's coming up just like David said volume picks up prime is picking up on the downside here your cell rules are getting hit should be out of this stock and you and you're never in this you'll end it and of course this will not meet your trend template criteria once it starts rolling over

In this section, the speaker talks about selling stocks when they start to roll over. He emphasizes the importance of following one's trend template criteria and cutting losses quickly when wrong. The speaker also discusses the benefits of portfolio turnover.

Importance of Following Trend Template Criteria

• When a stock starts to roll over, it is important to sell it.

• Following one's trend template criteria is crucial in determining when to sell a stock.

• Turnover is a good thing as long as there is an edge.

Benefits of Portfolio Turnover

• Turnover allows for cutting losses quickly when wrong.

• It enables selling stocks with profits and nailing those profits down.

Opportunity Cost Like this all that criteria goes out through out the window and you're not even going to be thinking about owning a stock like that and you to save yourself a lot of aggravation here so I'm looking the time my trades based on the trend template and looking for those vcp patterns but also I'm going to admit

In this section, the speaker talks about opportunity cost in trading. He explains how finding multiple smaller gains can be just as profitable as finding one large gain.

Finding Multiple Smaller Gains

• Finding three stocks that go up 20% or six stocks that go up 10% can be just as profitable as finding one stock that goes up 75%.

• It is important to find a strategy that works best for oneself and stick to it.

Short Term Trading If you compound that out you have to first of all to find what your strategy is and decide what's going to be the easiest route can you is it easier to find restocks ago up 20% or six docs go up 10% I think so for me it is I'm better at finding those stocks than I am at finding a handful of stocks that go up 75% so I'm usually in

In this section, the speaker talks about short-term trading. He explains how he prefers shorter-term trades with smaller gains over longer-term trades with larger gains.

Short-Term Trading

• The speaker prefers short-term trades with smaller gains over longer-term trades with larger gains.

• When the speaker was winning championships, his trades were shorter term but not necessarily only two or three days long.

Trading Strategies for Consistent Returns

In this section, the speakers discuss their trading strategies and how they achieve consistent returns year after year.

Defining Your Style

• Defining your style is crucial to achieving consistent returns.

• Stick to one particular style and perfect it before drifting off of it.

• The speakers have stayed with a particular style for decades, believing in its timelessness and learning everything about it.

Timing and Turnover

• Consistently turning out big returns comes from timing and turnover.

• Even back in the 80s when training was really cutting edge, turnover was important.

• Base your decision on how the stock is acting rather than taxes when thinking about selling a stock.

Day Trading vs. Swing Trading

• Day traders sacrifice bigger moves but have no overnight risk.

• Swing traders may sell stocks that go on to become bigger winners but have more significant moves overall.

Benefits and Limitations of Different Approaches

• There are benefits and drawbacks to every approach, so stick to what works best for you.

• Sticking with one strategy for an extended period is key to success.

Concentration is Key

In this section, the speaker emphasizes the importance of concentration in achieving big returns and explains how diversification can limit upside potential.

Concentration vs. Diversification

• Concentrating your portfolio is necessary for consistently turning out big returns.

• Diversification can limit your upside potential.

• Managing risk-reward ratio is crucial when increasing concentration.

Position Size and Desired Return

• Using a calculator, the speaker demonstrates how position size affects desired return.

• A 10% position size with an average gain of 12% and an average loss of 6% requires 134 trades to achieve a 40% return.

• Increasing position size to 25% reduces the number of trades required to achieve a 40% return to just 54.

Drawdowns and Risk Management

In this section, the speaker discusses drawdowns and their impact on overall performance. He also shares his own experience with managing risk and avoiding significant losses.

The Importance of Drawdowns

• Drawdowns can significantly impact overall performance.

• The speaker shares his experience with clients who experienced a massive drawdown after initially achieving high returns.

Managing Risk

• Managing risk-reward ratio is key to avoiding significant losses during drawdowns.

• The speaker shares that he has had only a few negative quarters in several decades due to effective risk management strategies.

Lessons Learned from Personal Experience

• The speaker asks Dave for advice on dealing with drawdowns based on his personal experience.

• Effective risk management strategies are crucial for avoiding significant losses during drawdowns.

Learning from Mistakes

In this section, the speaker talks about how he learned from his mistakes and developed discipline in his trading strategy.

Importance of Trading Directionally

• The speaker never buys a stock that is plummeting or getting hit extremely hard because it usually means something negative is happening.

• Rule number one is to always trade directionally, meaning in the direction of the trend (long-term, intermediate-term, short-term).

• Stacking probabilities by putting all trends in your favor can lead to higher probability trades.

Examples of Successful Trades

• The speaker provides an example of buying WR Grace as it turned up after resolving asbestos issues and coming out of a perfect DCP pattern.

• The speaker shares advice from Dave on how profitable trades are usually profitable right away and gives an example of Shaq where he bought off a low handle cheat area.

Coming Out of a Bear Market

In this section, the speaker discusses O'Neill's rule for buying stocks coming out of a bear market.

O'Neill's Rule

• If a stock shoots up 20% in a very short period of time and the pullback is shallow and recovers well, hold onto it because it has shown strength.

Buying Strategy

In this section, the speaker talks about his buying strategy and how he buys stocks during consolidation. He also explains how he holds onto stocks until earnings to take advantage of the gap.

Progressive Exposure

• The speaker never plunges into the market on his opinion, even if things start looking really good.

• He usually puts a toe in the water and takes a few trades when they are in a correction.

• When things start working, he moves up to 50% invested pretty quickly and tries to go to 100% as fast as possible.

• The speaker always pyramids on his success by building into his exposure when trading well and scaling back when things aren't going well.

Minimizing Drawdowns

• One of the most important principles for not having big drawdowns is exposing progressively.

• Building into your exposure when you're trading well and scaling back when things aren't going well will protect you in bear markets and make sure that you're invested heavily in bull markets.

Portfolio Management

In this section, the speaker talks about portfolio management strategies that he uses. He discusses how much he invests in each stock and how he determines position sizes.

Position Sizing

• A full position is 25%, so a quarter position will be 6.25%.

• If the speaker takes $1,000 profit, he can bump his position size up and risk $1,000 to go to a 12.5% position.

• If things are working and the speaker keeps pyramiding, he can get himself at a nice invested position.

Portfolio Size

• The speaker usually starts with ten stocks in his portfolio.

• When buying a new position that's going to be 10% of his portfolio, he usually starts with a 5% position.

Adding to Winning Positions

In this section, the speaker discusses the importance of adding to winning positions and not adding to losing positions. He emphasizes that if a stock makes a nice move and builds a whole new base, he might even double the position at that point.

Always Add to Winning Positions

• The principle is always adding to winning positions and not adding to losing positions.

• If a stock makes a nice move and builds a whole new base, it's time to add more.

• Doubling the position at that point can lead to great gains over time.

Cutting Losses and Avoiding Revenge Trading

In this section, the speaker emphasizes the importance of cutting losses when wrong. He warns against revenge trading and trying to make up for losses quickly by ramping up exposure or doubling up.

Cut Losses When Wrong

• Even experienced traders still have losses; it's important to cut them when wrong.

• Revenge trading by ramping up exposure or doubling up is how traders blow themselves up.

• Humility is key in trading; don't let emotions drive decisions.

Protecting Breakeven Point

In this section, the speaker discusses protecting his breakeven point as quickly as possible without choking off the trade. He explains how he moves his stop loss once a stock goes into new high ground after its first natural reaction.

Protect Breakeven Point

• Protect breakeven point as quickly as possible without choking off the trade.

• Move stop loss once stock goes into new high ground after its first natural reaction.

• Learn what's normal action vs abnormal action so you know when to get out of trades.

Example Trades

In this section, the speaker provides examples of recent trades and how he protected his breakeven point. He explains how he sold a little to cushion himself when the market got heavy and how sometimes trades don't go as planned.

Recent Trade Example

• Bought a stock coming out of a nice tight pivot point.

• Sold a little to cushion himself when the market got heavy.

• Got knocked out at breakeven point when the stock came in.

• Sometimes trades don't go as planned; it's important to protect your breakeven point.

Trading Strategies and Ego

In this section, the speaker discusses how he handles trades that don't go as planned and emphasizes the importance of not letting ego get in the way of making profitable trades.

Dealing with Losses

• The speaker acknowledges that sometimes trades don't go as planned and result in losses. He accepts this as part of trading.

• Sometimes, he moves his stop to break-even or ratchets it up to take advantage of a big gain.

• It's important to focus on what you do over time and what happens on average, rather than any one particular trade.

• Don't be a Monday Morning Quarterback and say you'll never make a certain trade again just because it resulted in a loss.

• You have to think about probabilities over the long term since you'll make hundreds or thousands of trades.

Resetting Trades

• There are advanced techniques for resetting trades such as pivot resets, pivot failure resets, and base failure resets.

• It's important to throw your ego into the trashcan every time you step into the market because just because you lost money on a stock doesn't mean you can't buy it back again if it sets up again with good fundamentals.

Selling into Strengths

• Selling into strengths is a hallmark of professional traders. Amateurs tend to get all-in when stocks are going up and start having illusions that they will keep going forever.

• The goal is not to get the high but rather to make a decent profit by making more than you're risking as many times as possible.

Trading USAK

In this section, the speaker talks about his experience trading USAK, a trucking company.

Buying USAK

• The speaker bought USAK thinking it had potential for a trade since it had a nice start out of the gate.

• He sometimes sells some of his position as it runs up quickly and moves his stop to break-even or breaks even on half his position while maintaining his original stop on the other half.

Selling USAK

• The stock came back and knocked him out of half his position, but then it was able to move up again.

• He got a nice gap on it, so he sold into that rally and made a little profit.

Selling into Strengths with Shutterfly

In this section, the speaker discusses how he played a recent trade with Shutterfly by selling into strengths.

Selling Shutterfly

• The hallmark of professional traders is selling into strengths. Amateurs tend to get all-in when stocks are going up and start having illusions that they will keep going forever.

• The goal is not to get the high but rather to make a decent profit by making more than you're risking as many times as possible.

• The speaker shows an example of how he played a recent trade with Shutterfly by selling into strength.

Swing Trading Strategies

In this section, the speaker discusses his swing trading strategies and how he trades around his position.

Reducing Position and Moving Stop to Break-Even

• The speaker reduces his position and moves his stop to break-even.

• He is free rolling the trade and will make money no matter what unless it gaps down.

• He adds back to the position during basing periods.

Recent Trades in ORGYTHX and Netflix

• The speaker bought ORGYTHX when it was correcting very little and started buying as it came through a low cheat.

• He reduced shares, sold some of his position, then started backstopping it.

• He sold into strength when he was up almost 40%.

• The speaker bought Netflix as it was coming out of a base with VCP characteristics.

• He reduced some shares, sold into strength, and watched for signs of a top.

Cutting Back Dramatically When Signs of Topping Appear

• When a stock is going straight up like that, the speaker watches it carefully for signs of a top.

• If he sees a reversal on volume or an inside day followed by a gap down, he cuts back the position dramatically.

• There are some signs where technology stocks recently have had those signs of topping.

Selling into Strength

In this section, the speaker talks about selling stocks when they are in a later stage of the bull market and have had a good run. He gives an example of how he sold some shares of Ali's Bargain Outlet before earnings because it had a nice run-up.

Selling Stocks in Later Stage of Bull Market

• The speaker mentions that he is in the later stage of the bull market and is looking for some type of blow-off move.

• He sells his stocks when they are at their peak because he knows that they will break hard once it comes off that.

• The decision to sell depends on where it occurs. For instance, if he was buying a stock coming out of a bear market, he probably wouldn't be selling any shares or maybe reducing them slightly but holding for a much better move.

Example: Selling Ali's Bargain Outlet

• The speaker gives an example of how he sold some shares of Ali's Bargain Outlet before earnings because it had a nice run-up from 66 to 90.

• He believes that when a stock has such a good run and is so strong, it's time to reduce the position and take some off the table.

Trading Strategies for Different Investors

• The speaker mentions that David and him bought Ali's Bargain Outlet on the same day but traded differently. David held onto his position while the speaker traded in and out.

• Most big winners are big winners before they become household names. It's important to start moving into areas that might feel uncomfortable with smaller names, relatively small mid-cap names, names that you haven't heard about, and new technologies.

Example: Amazon

• The speaker talks about buying Amazon in 1997 when nobody knew about it. He mentions how he went to institutions and told them to buy the stock, but they laughed at him.

• Amazon was one of the most hated companies for a long time, and people only started saying that it could make money recently.