Professional Documents
Culture Documents
Richard Moglen
Mark Minervini:
• No Big Losses
• No Forced Trades
• I am my biggest enemy in trading
My Background
• Born in Pakistan & did BS Petroleum Engineering there
• I did MSc Petroleum Engineering from University of Oklahoma, Norman USA, 1990
• Always among the top in Oil Industry
• Famous for college football : Sooners
• Started work with Schlumberger in Pakistan =>> top Service company in Oil Ind
• Worked for ENI
• Moved to UK in 2001: Joined Talisman in Aberdeen: Canadian Oil Company
• Worked for Canadian Natural Resources (CNR) an excellent company which expanded
phenomenally from 1989 to 2007
• Worked as Exploitation Manager Northern North Sea
• Decided to stay technical
• Became Consultant for Centrica
• Later worked as Consultant for Sasol in London Office
• My contract with them was not extended in May 2020
• Started full time trading in July 2020
• As salaries in Oil Industry are high and as Consultant even higher =>> not easy to leave job
My Investing Career – How I started
• I started trading in 2007 =>> the worst time just before market crash in 2008
• Started reading William O’Neil =>> How to make money in Stocks
• Got membership of IBD & Market Smith
• Bought their Courses and learned CANSLIM
• It was an eye opener
• Start was pretty good =>> while market was pulling initially
• Transport (rails) & Oil were doing good
• Identified them and made reasonable
• Following IBD, I was out of the market when the bear market started
• Market bottomed in March 2009 =>> I was positive since I started =>> that was great
• William O’Neil also thought that market had bottomed
• Bought multi-baggers like AAPL, PCLN, Googl etc
2008-9 Bear Market- Nasdaq
Market Sentiments
2008-9 Bear Market- PCLN- now BKNG
• Favorable outcome = 1
• Unfavorable outcome = 6-1 = 5
• Odds : 1:5
• What is breakeven risk/reward?
• 3 out of 4 shares follow the market =>> for growth stocks it could be worst: 5 out of 6 (Odd 1:5)
• Odd : 2:5
• Probability of drawing a red marble from a jar of 20 marbles
• Odd: 1:3
Why not to take Excessive risk
Don’t put all your money in one stock even if odds are in your favor
Building in the Failure - Mark
In choppy or bad markets not only odds are against you but risk/reward is also against you
Probability
• Trade like a casino not the gambler
• Odds are in the favor of Casino =>> built in edge =>> higher win rate
• If odds are 50/50, they will soon be bankrupt =>> running expenses
• Black Jack: Card Counting =>> played with higher bet when odds were in their favor
• Jess Marcum, Joe Bernstein etc. used it
• Now casinos were gambling & they were not
• Casinos have to change rules : added more deck
• Edward Thorp is called father of card counting =>> also tested in casinos
• What does that mean? =>> Play when Odds are in your favor
• Play little or not at all in tough or choppy markets
High Probability Trading
Put as many odds as possible in your favor
• Market Direction: Trade in the long, medium & short term direction of the market
• 3 out of 4 stocks follow the market
• In a correction the odds of success are 1:3
• It is worst for growth stocks =>> may be as bad as 1:5 or even worst
• Stock coming from a proper base
• Base has elements of strength
Base has elements of support, shake out
• Industry Group Performance
• Very Important
• Most stock move in groups =>> normally easy to spot
• Leaders in the Industry Group
• Only top quality
• High RS, Excellent earnings, ROE, New products & Services, institutional sponsorship
• Risk reward ~ 1:3
• In bad market not only odds are against you but risk reward is also lower
• Etc etc etc
Odds & Risk/Reward - Simplified
Choppy Markets/Correction:
Odds 1:3
Is that profitable?
Years Profit
12% 18% 26%
0 10000 10000 10000
1 11205 11762 12622
2 12555 13835 15931
3 14068 16272 20107
4
5
15763
17662
19140
22512
25379
32033
Minimize your drawdowns
Profit/Loss 77% 125% 220%
How I Minimize Drawdowns
1. Trade Directionally =>> High Probability
• Trade in the long-term, medium-term & short-term direction of the market
2. Expose Progressively
• Don’t plunge in the market on opinion, even if things are looking great
• Go in slowly (go to 10, 20% and then 50% ……..)
• 1 or 2 stocks 5 to 6% each =>> use profits to fund next share
• Bend with the market =>> only increase exposure if these are working
4. Sell into strength =>> this made a big difference to my trading =>> Free roll the rest
5. Don’t try to sell at the top =>> chance to sell at the high is very low:
• Just take reasonable profit
• In a normal market, I sell some above 20% profit
• Only hold for a long period if coming from bear market or deep correction
How to Minimizing Drawdowns
7. Sell at least half if a share squat after making a big gain at BE & consider selling all if it goes
below days low =>> can always add back
8. Trade largest when you are trading your best (not market)and smallest when trading your
worst or not at all
9. Cash is a position
Listen to The Market - Direction
• Performance of the portfolio is the best indicator
• Indexes are not as important
Indexes may be going up, but underlying market is weak
• Failed break outs, shrinking set ups, smaller watch list
• Distribution days in Indexes =>> Professional selling
• Divergence in indexes after a big move (could be sector rotation)
• Nasdaq stocks above 50D & 200 D (stock participation)
• Sentiments (Contrarian)
• Seasonality
• What industry groups are performing =>> Leaders, laggard or Defensive groups, sector rotation
• Daily Industry groups performance =>> Leaders, laggard or Defensive groups, sector rotation
• No of shares up vs down
• Actual Inflation vs Expected Inflation
• Advance decline line (stock participation)
• New Highs, new Lows
• Up/Down Volume
• 10 Year US Treasury Yield Market Conditions are Key
Markets: Nasdaq 2020: Distribution
Markets 2020: Divergence
Markets 2020: Divergence
Which Shares Were Holding
Markets: Nasdaq
Nasdaq: 2020: No. of Stocks above 200D??
• Market was so strong that it will take time for stocks to go below 200D
Nasdaq 2020: No. of Stocks above 50D
• Contrarian Indicator
• Value above 60 could be a red flag
Markets 2021
Markets 2021
Markets: Nasdaq: 2021:
Stock Participation?
Markets: Nasdaq: 2021: No. of Stocks above 50D
Advance Decline Daily Line
10 Year US Treasury Yield
Seasonality
Market Sentiments
• Contrarian Indicator
• Value around 60 could be a red flag
DOCU: Daily : 2020
Position size = 8 15 20 25 30
Risk of total equity = 1.25 1.25 1.25 1.25 1.25 can make it 2.5% in good market
Risked Amount $ = 1250 1250 1250 1250 1250
Invested amount = 8000 15000 20000 25000 30000
Stop Loss = 15.63 8.33 6.25 5.00 4.17
No of shares = 12.5 6.7 5.0 4.0 3.3
• My maximum risk per trade for normal position is 1.25% of the portfolio
• In choppy market, tighten SL to 5% and position size to 8%
• Risk to total equity reduces to only 0.4 %
• Even if we are wrong 10 times in a row, we may lose around 4%
• If reduce position size to 6%, the risk will be even lower
Reduce Draw Downs
Buying – Trend Template - Mark
Base Structure Analysis
• Have a high probability base (Power Play/High Tight, VCP etc. etc.)
• A prior uptrend of 30%
• Length of the base: the longer the better
• Does base contain elements of strength
• Daily Gaps up on volume
• Relative strength line at new high (blue dot, or near high)
• Tight weeks
• More accumulation the distribution especially on the right side of the base
• Does base contain elements of support
• Support weeks
• Base on top of base
• Has there been a “Shake Out” near the lows of the base
• Does the stock surge higher on volume at the pivot point
• Time compression in the base
Base Analysis: PAG
• Textbook VCP, gap up, smooth pull back, nice right side, accumulation on weekly
• Accelerated earnings, and sales, No of Funds increasing, U/D Volume 1.4, ROE, 17%, good weekly closes
Base Analysis: PAG
• Accelerated earnings, and sales, No of Funds increasing, U/D Volume 1.4, ROE, 17%
• Good weekly closes
Recent Trades: PAG
Recent Trades: MRNA
• Textbook set up
IT: D: 2021
• Accumulation
• Weekly tight closes
My Favorite Set-Ups
• Power Play
• stocks are very powerful & live in their own world (Leif 2019 USIC Champion has mastered it)
• high probability trade & impacted less by the market
• Consolidation
• Very powerful especially in choppy or market pullback, RS, high probability
• VCP & Cup with Handle
• Low Cheat =>> lower risk
• Cheat
• Pullback buy
• At times W
• I don’t use trend lines & other set ups
• Just use 21D, 50 D, 100 D & 200D along with RS along with Price & Volume action
Handling Stocks & Markets
Have to handle shares differently depending upon where we are
• Market in uptrend
• Coming from bear market =>> High RS, new leadership, many multi baggers =>> hold leaders longer
• From deep correction =>> High RS, some multi baggers =>> hold longer
• From consolidation or choppy market =>> High RS, less multi baggers =>>
• take at least some profits in strength, most stocks will form bases after 20 to 30% move
• Powerful Rally =>> Take at least some profits in strength & set the rest with 21D or 50D
• Extended/blow off/weakening =>> watch market indicators
• Reduce exposure
• Sell in Strength
• May buy large cap
• Sideways or Choppy/sector rotation
• Tight stop loss, small position sizes, progressive exposure, High RS
• Quick profits
• Market in correction=>> Keep an eye on follow through day, a stock with high RS breaking out
• Deep Correction
• Bear Market
Selling & Handling Stocks
How to Handle Stocks
Buying is easy, selling and handling of stocks is way more difficult
• Keep losses small
• Move SL to breakeven ASAP
• Don’t let a good size gain turn into loss
• Defensive selling (minimize drawdowns)
• Stop Loss (Tighter SL in choppy markets)
• Violations & Sqat (help to reduce overall drawdowns) as probability is way lower now
• Offensive selling =>> Market conditions is key
• Take smaller profits in choppy or extended markets
• Selling some in the strength, moving up SL & free roll the rest
• Sell once stock hit 20 to 30% gain in normal market
• Most stocks form basis after 20 to 30% gain
• Hold longer when coming out of Bear Market or deep correction
• Use 21D, 50D etc to sell (sometimes 9D)
Bullish Signs
• Follow through price action after a breakout=>> 2-3 follow through days
• Quiet price action after breakout
• More up days than down days & more up weeks than down weeks
• 3 up days out of 4, 6 up days out of 8 =>> hard to buy
• Tennis ball action – price snap back after pull back or natural reaction
• Strong volume on up days & weeks Vs down days & weeks
• More good closes than bad closes
• 3 lower lows with small price action are not worrisome – natural reaction
• Big down days especially with heavy volume are worrisome =>> consider selling
• Reversal recovery from squat
NVDA: How I handled it
• VCP Action, Base shows element of strength =>> gap ups, accumulation, 5 follow through days, tennis ball action
• Buy Point = 158.30, Stop Loss = 151.76 (4.1%), violations, squat
• Raised SL to BE once it was up over 10%
• Sold 50% in strength (19 % profit) & rest after it broke 21D
Violations & Bearish
• Low volume out of base and high volume back
• Three or four lower lows without supportive action
• Big down days with heavy volume are more worrisome
• More down days than up days
• More bad closes than good closes
• Close bellow 21D soon after the break-out =>> lowers odds
• A close below 50D on heavy volume
• Retracement of a good size gain
• Wide price action/increase volatility on volume
Defensive Selling: Violations
Violations: GM: Market
Base shows element of strength =>> gap ups, accumulation in weekly, calm PB
GM-W
Look for Warnings - Mark
• New highs from late fourth and fifth stage bases
• P/E expansion by twice or more during late-stage price action
• Climax run or blow-off top (price up 25 to 50 percent or more in one to three weeks)
• On extended stocks, 70 percent or more up days versus down days over a 7- to 15-day period
• Once the stock is extended, 6 to 10 days of accelerated advance with all but 2 or 3 days being
down
In addition:
• Look for the largest up day since the beginning of a long move during the fast run-up.
• Look for the widest daily spread from high to low.
• Look for recent exhaustion gaps.
• High-volume reversals
• Elevated volume without much price progress—“churning”
• The stock price down on the largest volume since the beginning of the move
My Routine -Weekly
• Review health of the market
• Review my short notes
• Review Mark preliminary list
• Market Smith Industry Group Performance
• Review IBD-50
• Review MS Growth 250 (IBD)
• IBD Sector Leaders, IBD Industry themes, Industry snapshot
• RS Scan/Blue Dot =>> especially side-ways or when market in correction
• Probably the best scan in difficult markets
• Break away gap
• Read “The New America” (IBD)
• Narrow down to 20 to 30 stocks
• Post Analysis
Market Smith - Industry Groups
Market Smith - Industry Groups
METC: Energy: Coal: D
METC: Energy: Coal: Weekly
• Sold in strength
Trading Plan
Buying:
• Buying Criteria: An entry “mechanism” that determines precisely what triggers a buy decision
• Why you bought it
• Buy Point
• How will you position size
Selling:
• Know where you are getting out: =>> How you are going to deal with risk
• what will you do if the trade moves against you, or if the reason you bought the stock changes
suddenly?
• Defensive sell ~ 6-7% (or lower) stop loss, Multiple violations, squat
• Offensive sell – how you are going to lock in profits =>> depends on the market
Help you to make good decisions when you are under fire
My Daily Routine
• Mark additions to watch list
• Daily %age change – Industry groups – what sort of groups are performing
• Socks on the move (IBD) =>> leaders moving on high volume
• IBD – Big picture, psychological market indicators
• RS line Blue Dot : RS line on new highs (MS)
• Breaking out today (MS)
• Update my Pretend Buys (not paper trading, very useful in difficult markets)
• Post Analysis
• Etc. etc.
Trade Like Mark
• Mark have trusted me with his account =>> I have to trade for him
• Every day, week & month I will be appraised
• Goal is to trade like Mark =>> Profit is not the goal
• Stick to Rules & Discipline =>> I will be JUDGED on that
• I am my biggest enemy => Calm down, No rush, No Panic
• Risk Management is key
• No Impulsive buying/selling: don’t be impatient =>> FOMA
• If trade goes against you, don’t panic =>> stick to rules
• Don’t let losses run on hope: Sell when wrong, don’t change stop loss
• Don’t Jump in and jump off in one go without real reason: Impulsive, fear, panic
• Don’t take big positions =>> go slowly
• Don’t waste money in day trading
• Don’t waste money in Shorting =>> no shorting of stocks
• Don’t look at the markets but stocks =>> how they are behaving
Trading on the Day
• Review Daily Reminder List
• Focus List
• 6 or maximum 9 stocks to watch for the day
• Charts of Focus stocks on the screen
• Marked buy points on chart – line
• Have a summary hard copy
• Ranked list
• Preference to Power Play
• Industry groups
• RS Line/Blue Dot
• Base Structure
• Prefer a stock if the industry group performance is excellent
• Have the main list on the screen =>> to see the overall health of the market
• If had only money for 1 stock (in good market) but like two stocks, the use margin for the day
• Sell something by the end of the day