Wednesday, June 30, 2010

Notes from the Minervini Webcast

Twitterer @MarkMinervini, his blog site here, did a free webcast last evening last evening in Q&A fashion, with listener questions randomly selected by one of his sidekicks.  Below, find a bulleted list transcript of my notes in the same random order.

Disclaimer.  Since the webcast was free, and since he went out of his way to invite everyone on Twitter at least half a dozen times, I feel like Mr. Minervini would not mind me writing this with the sole intent of passing along information.  He currently sells a trading class and alluded to an upcoming book.  I have nothing to do with either of those, and none of the things he talked about last night seemed proprietary.  Indeed, much of that discussed should be known already, but he's quite succinct, and the consolidation of genuinely passed, truthful information made this webcast particularly golden.  Finally, the list below is a typed copy of my handwritten notes from an 80 minute long conference call.  The sentiments conveyed may or may not be what Mr. Minervini was trying to communicate.  These notes are answers to questions that did not get written down due to the pace of the call.  Any application of context is solely the responsibility of the reader.

  • generally, relative volume is an especially important indicator on small to mid-cap stocks because they are less affected by HFT -
  • for pilot trades (think weather balloon or windsock) start with a quarter to half position size -
  • look for accumulation on the major averages -
  • the second wave of pilots is when you expect follow through before ratcheting up [position sizing, leverage] -
  • the most favorable stock/entry point will have technicals, fundamentals, and market tone aligned -
  • keep a pulse on sentiment - question widespread agreement -
  • STICK WITH YOUR STRATEGY - know it inside and out - know the strengths and drawbacks -
  • erratic price action right of a base is indicative of distribution -
  • generally would buy within 25% of a 52 week high, not much more pull back acceptable because the trend could be broken -
  • mainly buys in the direction of a trade - (ie - adds to longs on breakouts and upticks) -
  • buy leadership and buy in order of breakout -
  • it's the sign of a professional to be emotionally detached - some of the best trades have come after getting stopped out 3 or 4 times -
  • not losing, not making big mistakes, consistency are the most important aspects for beginners to focus on -
  • keep a tight reign on risk - a good stock will give you several opportunities to get in - wait for the lowest risk entries -
  • BUY IN ORDER OF BREAKOUT (this was mentioned several times - i starred and bolded this in my notes to add emphasis because it seems like a key tenet of his strategy)
  • get over large losses by accepting small losses -
  • sell when risk outweighs reward -
  • looks for stocks in a long term uptrend and then medium to long term consolidation -
  • non-negotiable stock screening criteria:  long term technical action, tight base, volatility depression - referenced a mental reward-to-aggravation ratio vis a vis volatility -
  • buy with the trend -
  • generally, strong volume on the up days and low volume on the pull backs are what you want to see -
  • generally, he avoids gap trades because they are not a part of his core competency - he reinforced that you need stick to what works and not jump strategies all the time - if you play gaps and they work for you, roll with it - otherwise find your core competency and exploit it relentlessly -
  • stocks are his broad market indicator - if there are a lot of stock setups developing or in play it indicates to him a healthy market ahead -
  • novice shortfalls:  overtrading, not sticking to one functional strategy - success in this game takes time and discipline -
  • first assessment before entering a position:  "how much can i lose?" - advocates using stops - by choosing high probability entries, can keep losses in the mid-single digit range -
  • there is no money to be made in predicting trends (broad market, political, economic landscape, etc.) -
  • "i buy stocks that setup, and if it isn't what i want, i don't buy it" -
  • respect risk -
  • you have to sacrifice other things to focus on one thing - emphasized distinction between traders and investors -
  • predictions make less flexible traders -
  • the forces behind stock trading haven't changed [supply and demand] even though cost of a trade and speed has changed -
  • "i don't want to hear or read anyone else's opinions" - emphasized honoring his strategies and methods, not allowing his judgement to be clouded or questioned due to the success patterns and back testing -
  • trading skill is more important than the stocks - discussed a strong trader would likely do better with mediocre stocks than a mediocre trader with strong stocks because the strong trader is adaptable and disciplined -
  • preference to limit position exposure to 25% -
  • prefers to trade small companies because that's where the pricing inefficiencies are greatest -
  • mid single digit losses are pretty much all that is acceptable - think about a strategy having a success distribution - limiting losses while maximizing gains extracts the most value from the strategy -
  • using new highs and new lows profiles -
  • uses screeners for technical action, then uses technical, quantitative, fundamental analysis to further limit this list of potential trades - usually keeps 8 or 10 on watch and emphasized buying the breakout - must honor the system and not let ego, or love for a name preclude you from making money -