Practicing Stan Weinstein's Method

[traderprg]

It has been quite successful for me, although it took a lot of experimenting and studying to get to point I am at now as I made a lot of mistakes earlier on as I was trading both trader and investor methods and trying to find my style. From August last year was my first serious attempt at trading the investor method solely, and I managed to bank 26% profit between then and March this year. Although I was close to 50% at one point early in year as two of my positions ADEP and PLUG were really flying high, and I got greedy and held on a little too long in PLUG and only ended up with 157% profit instead of the 330%+ it got too from my entry point. But, lesson learned, and so will hopefully not repeat it, and take some off when a stock I hold goes parabolic in future.

What a run with PLUG and ADEP! If I were you, I would have became panic and sold off much earlier. For the past few months, I have been struggling with when to sell and rereading chapter 6 multiple times. Now I use a combination of trendline, previous resistance , swing rule and doubled MA etc to guide me through. Lots to learn..

I spent a few years experimenting with the method and studying it before I came the conclusion that I already knew when I started, that the investor method was what suited me, as I don't have the time necessary for the trader method and don't need the action every day. As I'm quite happy to sit through a Stage 2 advance for 6 months+ and not get phased by the significant pullbacks towards the 30 week MA along the way.

I can see from your posts that you are definitely in the trader method camp, but you are using the investor method Stage 2A breakout point. Which is fine, but Weinstein recommends that people using the trader method do the majority of their buying in stocks that are already in strong Stage 2 advances and have consolidated for a few months above a strongly rising 30 week MA (See "Ideal Buy for Trader" Chart 3-3 from page 62 of the book below).

I would love to do pullback purchase but I am not yet confident of identifying pullback yet and I haven't got time to learn & practice this trick (Same for shorting and continuation buy). That's why I am mostly buying all my positions during breakout point. I try not to overwhelm myself.

The investor method Stage 2A breakout point (see "Ideal Buy for Investor" Chart 3-1 on page 60 of the book above) is much more likely to be tested as it's the beginning of the Stage 2 advance, and so the initial breakout that you are playing will often pullback the whole way and little bit further even before forming the secondary investor entry point and then moving higher and making it's first continuation breakout above the initial high. From my experience this is one of the best places for a trader, as the stock is just coming out of the Stage 2A phase, and moving into a the main Stage 2 phase, and it also gives the trader the chance to judge the initial Stage 2A breakout and subsequent pullback. i.e. did it meet the volume requirements on the breakout week and then continue to have strong relative volume in the weeks following as it advanced higher? Then once it reached it's initial high, did the volume contract significantly on the pullback to retest the Stage 2A breakout level? Did the relative performance versus the S&P 500 breakout above it's zero line on the breakout, and continue to show strength throughout the pullback etc.

So the trader can judge the initial Stage 2A phase and then get into the A+ candidates with less risk.

Thanks for sharing that. Are you buying half position on pullback as described in Stan's book?

I'm not in MMYT, but am considering if it can close the week above the breakout level near the high of the week.

RDI came up on my watchlist back in late February as one with potential for a trader continuation, but I lost track of it after that. Looks like it's had a good run.

The best looking trader continuation I had on my watchlist this week was BDSI - which I highlight on my thread on the Stage Analysis forum on Wednesday at 11.42, and it has continued to look strong since.

Cheers

Now I wish one day I could code a system to identify the stage 2 / continuation breakouts and buy and sell them automatically. That sure beats my ego and weak mind

 

[traderprg]

Nothing showes up on my stage 2 breakout screener - that means fewer stage 2 breakouts. Stay tuned for some analysis on that later this week.

 

[traderprg]

My sellstop screenshot.

Note that I am using trader sellstop based on previous swing low.

A little reasoning on why the sellstop for REDF:

REDF had a huge jump today. Although it had a previous pullback around 2.3, It would be too much risk to set it below 2 than my current sellstop 2.37 ( 35% loss vs 15% to my entry point ). And based on it's last year spike pattern, I will want to cut it quickly if it drops back to it's previous low.

In Stan's book, He said to avoid stock that is too far away from the 30 WMA and previous low because of the downside risk. Purchasing REDF is a good example of breaking his rule.. We will see how that pans out

 

[artwork79]

Thanks for sharing that. Are you buying half position on pullback as described in Stan's book?

I try to on the Stage 2A breakouts, but it depends on the position size I use, which I determine using the average true range from the last year.

 

[deaddog]

I try to on the Stage 2A breakouts, but it depends on the position size I use, which I determine using the average true range from the last year.

Can you explain how you determine position size? Do you take the size of your account into consideration?

I calculate the location of my stop and risk a percentage of my capital.

 

[artwork79]

Can you explain how you determine position size? Do you take the size of your account into consideration?

I calculate the location of my stop and risk a percentage of my capital.

To calculate the position size I currently use 0.5% of my total account size divided by the 200 day Average True Range of the stock, so for example on the Stage 2A breakout week for SPYR back in May the 200 day ATR was 0.154 and so if you had a account size of say $20,000 then it would be:

100 / 0.154 = 649 shares, so at the price at the time of 3.74 that would have cost $2,427.26 + fees

 

[deaddog]

To calculate the position size I currently use 0.5% of my total account size divided by the 200 day Average True Range of the stock, so for example on the Stage 2A breakout week for SPYR back in May the 200 day ATR was 0.154 and so if you had a account size of say $20,000 then it would be:

100 / 0.154 = 649 shares, so at the price at the time of 3.74 that would have cost $2,427.26 + fees

Any reason you use those numbers? Why not the 20 ma to reflect more recent price moves?

Do you also use the ATR to determine your exits?

 

[artwork79]

Any reason you use those numbers? Why not the 20 ma to reflect more recent price moves?

Do you also use the ATR to determine your exits?

I'm a position trader and so look for medium to longer term Stage 2 advances and so the 200 day figure works quite for me I've found. But it would make sense for a short term trader to use a smaller figure like a 20 day ATR as that would cover roughly a months worth of trading days, or a 50 day if you swing trade maybe.

I use the ATR for lots of things. Grading trades, Position sizing, Targets and Stop Loss for risk reward calculations, as I aim for at least a 3:1 RR ratio. So for example the stop loss is generally around 2 to 3 x the ATR figure, and so I'd be looking for a minimum of 6 to 9 times the ATR figure for the initial target to potentially take some profits.

I'm still trying to fine tune how I use it, but basically it gives me a fair way to grade each trade as each trade is judged on how much it has moved after I've bought it compared to it's previous 200 days average true range. So you can judge a trade in large cap stock which might only move a few percent a day with a trade in a micro cap stock that swings around ten or more percent a day, as all that matters is how much it's moved compared to it's own average movement.

Hopefully that makes sense.

 

[deaddog]

I'm a position trader and so look for medium to longer term Stage 2 advances and so the 200 day figure works quite for me I've found. But it would make sense for a short term trader to use a smaller figure like a 20 day ATR as that would cover roughly a months worth of trading days, or a 50 day if you swing trade maybe.

There doesn't seem to be any definite correlation between the length of time you use for the ma and the size of the ma.

I looked at HGT, SYPR & REDF. As the ma increases in size the ATR gets smaller.

However the major indexes SPY and DIA the ATR gets bigger as the ma increases

QQQ and a few other stocks I looked at there doesn’t seem to be any pattern.

I use the ATR for lots of things. Grading trades, Position sizing, Targets and Stop Loss for risk reward calculations, as I aim for at least a 3:1 RR ratio. So for example the stop loss is generally around 2 to 3 x the ATR figure, and so I'd be looking for a minimum of 6 to 9 times the ATR figure for the initial target to potentially take some profits.

I'm still trying to fine tune how I use it, but basically it gives me a fair way to grade each trade as each trade is judged on how much it has moved after I've bought it compared to it's previous 200 days average true range. So you can judge a trade in large cap stock which might only move a few percent a day with a trade in a micro cap stock that swings around ten or more percent a day, as all that matters is how much it's moved compared to it's own average movement.

Hopefully that makes sense.

I would also like to see a 1 to 3 risk to reward ratio.
I size my trades somewhat similar to you. I determine where my stop will be based on where there is resistance. I put 0.5% of my capital at risk. The difference between entry and stop divided into my risk gives me my position size.

As far as grading trades I use % of capital realized or lost. Then it doesn’t make any difference what the price of the stock is that I’m trading.

 

[artwork79]

PLUG - a previously successful trade for me from earlier in the year looks to be making a potential weekly pullback entry point. Since it went parabolic in February/March it's pulled back 69%, and has spent the last month or so consolidating on lower volume around the still rising 30 week MA.

Yesterday it broke out of that small base on 2.4x the average daily volume and closed the day back above the 50 day MA. If you zoom down on the time frames to the 2 hour chart (attached) you'll see it's made a Stage 2A breakout on the 2 hour chart with good potential imo, as the volume increased significantly on the breakout at more than 7x the 2 hour average volume and increased into the close.

View attachment 146887 View attachment 146888 View attachment 146889

Finally, I've also attached the monthly chart that shows that the volume has contracted through the pullback phase, and that it's still trading above it's rising 10 & 30 month MAs and so I'm going to look to trade this today depending on how it opens with my stop loss below the recent major swing low at about 3.59

View attachment 146890