Read on Twitter
On March 25, 2015, two Stock Market Wizards sat down to discuss the principles that led to their success
3X US Investing Champion David Ryan & 2X US Investing Champion Mark Minervini have mastered the art of super-performance
10 Rules they follow to reach +100% Returns (Thread)
3X US Investing Champion David Ryan & 2X US Investing Champion Mark Minervini have mastered the art of super-performance
10 Rules they follow to reach +100% Returns (Thread)
Rule #1 Concentrate, Donât Diversify
The first rule they follow is to focus their attention and capital on only the best of the best ideas in the market.
In the best markets concentrate your portfolio in 4-10 of the top 1% of leadership stocks.
The first rule they follow is to focus their attention and capital on only the best of the best ideas in the market.
In the best markets concentrate your portfolio in 4-10 of the top 1% of leadership stocks.
Depending on your style the best stocks may look very different but with thousands of stocks to trade donât settle for second best!
Have strict criteria based on your experience and studies of the top performing stocks.
Have strict criteria based on your experience and studies of the top performing stocks.
Focusing on a select group of high potential stocks allows you to execute without becoming distracted by the noise of the marketplace.
It also allows you to manage positions better and achieve strong performance quickly when the market kicks into gear.
It also allows you to manage positions better and achieve strong performance quickly when the market kicks into gear.
Mark focuses only on stocks in strong uptrends on all timeframes and then waits for a specific setup to appear called the VCP.
VCP Basses are a result of institutional accumulation, supply and demand, and VCP characteristics appear before all strong breakouts.
VCP Basses are a result of institutional accumulation, supply and demand, and VCP characteristics appear before all strong breakouts.
David Ryan is very similar, he prefers to focus on stocks that have already doubled with strong growth fundamentals in leading groups.
Then he looks for early stage base breakouts.
Then he looks for early stage base breakouts.
Rule #2 is to turn over your portfolio.
The goal of trading is an increasing equity curve, you donât get bonus points for holding stocks for years or sitting through drawdowns.
The goal of trading is an increasing equity curve, you donât get bonus points for holding stocks for years or sitting through drawdowns.
In fact, the best performing fund managers often have higher turnover rates as they execute their edges, manage positions, and sell to lock in profits.
In terms of selling, never think about taxes or try to get the high in a stock.
In terms of selling, never think about taxes or try to get the high in a stock.
Focus on following your sell rules and watching for character changes in your stocks.
Sell when the trend changes and your rules say the trade is over
Sell when the trend changes and your rules say the trade is over
Rule #3 Time Your Trades
Both Mark and David use charts to identify trade candidates, judge supply and demand, manage risk, and time their trades.
Both Mark and David use charts to identify trade candidates, judge supply and demand, manage risk, and time their trades.
They focus on buying a high potential stock at a time when the wind is at their back, the trends are up, there's very little supply, and there is very high demand.
Buying at such a precise moment allows you to know quickly if you are right or wrong in the trade.
If your timing was right you'll make immediate progress, if you were wrong the stock will retrace and break the trends.
It may be the right stock, but just the wrong time.
If your timing was right you'll make immediate progress, if you were wrong the stock will retrace and break the trends.
It may be the right stock, but just the wrong time.
Again, both Mark and David use charts to identify the correct time to start positions.
Mark uses the VCP to enter at precise moments where supply has dried up and the stock is ready to explode.
How to Trade the Volatility Contraction Pattern (VCP)
Mark uses the VCP to enter at precise moments where supply has dried up and the stock is ready to explode.
How to Trade the Volatility Contraction Pattern (VCP)
Similarly, David likes to enter a strong stock right as it has broken through ~ 90% of an early stage base
How David analyzes charts and finds buy points:
How David analyzes charts and finds buy points:
Rule #4 Manage the Risk Reward Relationship
This is perhaps the most important rule in this list. To achieve super-performance, you need to cut your losses at a fraction of your winners.
This is perhaps the most important rule in this list. To achieve super-performance, you need to cut your losses at a fraction of your winners.
This allows you to build in failure and stay profitable even with batting averages as low as 30% in the worst markets.
In strong markets, where you batting average can be 50% or greater, achieving a at least a 2-1, 3-1 Reward to Risk ratio allows you to compound rapidly
In strong markets, where you batting average can be 50% or greater, achieving a at least a 2-1, 3-1 Reward to Risk ratio allows you to compound rapidly
*Bonus*
No Big Losses, No Forced Trades
This is a key reminder that Mark repeats which forms the basis of his strategy..
Never take a big loss by practicing strict risk mgmt & never force a trade. Wait for the stocks to setup how you would like them to setup & then execute
No Big Losses, No Forced Trades
This is a key reminder that Mark repeats which forms the basis of his strategy..
Never take a big loss by practicing strict risk mgmt & never force a trade. Wait for the stocks to setup how you would like them to setup & then execute
Rule #5 Trade Directionally
Both Mark and David only trade stocks in strong uptrends.
Additionally, even if they are buying a pullback within an overall uptrend, they wait for the short term trend to actually turn up before entering.
Both Mark and David only trade stocks in strong uptrends.
Additionally, even if they are buying a pullback within an overall uptrend, they wait for the short term trend to actually turn up before entering.
By aligning timeframes and waiting for the wind to be at your back you will be able to tell if the stock is acting normally or abnormally, whether the train is arriving on schedule.
Be patient, be precise, and trade with the trends.
Be patient, be precise, and trade with the trends.
Rule #6 Build on Success
A key principle that David and Mark follow is to always use feedback from the market to determine how aggressively they will put on new trades and exposure.
A key principle that David and Mark follow is to always use feedback from the market to determine how aggressively they will put on new trades and exposure.
If they are trading well they can size up, and trade their largest when they are trading their best.
However, if they have gotten multiple stops hit in quick succession and new trades are not working, they will lower their position sizes and trade less.
However, if they have gotten multiple stops hit in quick succession and new trades are not working, they will lower their position sizes and trade less.
This ensures that in the worst markets and corrections they will naturally be pushed to cash while protecting the majority of their capital and profits.
Conversely, during strong bull markets as trades start working they will size up to capitalize on the favorable environment.
Conversely, during strong bull markets as trades start working they will size up to capitalize on the favorable environment.
Rule #7 Protect your Breakeven Point ASAP
When you initially enter a trade, itâs all risk.
You have your initial stop loss set here the setup would fail.
If the stock hits this point there is no discussion, protect your capital and cut your loss and never average down.
When you initially enter a trade, itâs all risk.
You have your initial stop loss set here the setup would fail.
If the stock hits this point there is no discussion, protect your capital and cut your loss and never average down.
If the stock makes progress for you, your next objective is to protect your breakeven point.
A rule of thumb is to move your stop loss to your cost basis once the stock increases 2X of your initial risk.
A rule of thumb is to move your stop loss to your cost basis once the stock increases 2X of your initial risk.
Finally, if the stock continues to trend and make profits, you want to lock those down systematically either into strength or into weakness.
You can use a backstop to ensure a profitable trade and sell partial positions to lock in profits.
You can use a backstop to ensure a profitable trade and sell partial positions to lock in profits.
Rule #8 Sell Into Strength
Selling into strength is a learned method used by the best professional traders.
As a stock gets extended you can always sell half of your position.
From this point if the stock continues up or down you were equally right to sell half & hold half.
Selling into strength is a learned method used by the best professional traders.
As a stock gets extended you can always sell half of your position.
From this point if the stock continues up or down you were equally right to sell half & hold half.
You may sacrifice some longer term profits but you will ensure that you are keeping your account near all time highs.
Additionally by selling partials such as half positions, you are able to hold the remainder of your position for a larger move.
You can also trade around a core position and look to add back to the stock after it sets up again.
You can also trade around a core position and look to add back to the stock after it sets up again.
Rule #9 Conduct Post Analysis Regularly
This is one of the most important rules in this list and is often overlooked by new and veteran traders alike.
Analyze your own trading to determine your trading statistics and common errors.
This is one of the most important rules in this list and is often overlooked by new and veteran traders alike.
Analyze your own trading to determine your trading statistics and common errors.
At first it may feel difficult and even embarrassing to look back at your mistakes but after finding just one systematic blunder and implementing a rule change to fix it, you will recognize how important post analysis is.
Early on in his trading career, David Ryan took an account and doubled it quickly. Then, as the market turned, he ended up giving back all his profits and then some.
However, he marked up every trade he made during this period and found his mistake: entering extended stocks.
However, he marked up every trade he made during this period and found his mistake: entering extended stocks.
By fixing this error, which he was only able to find after analyzing his trades, he was able to turn things around by focusing only on proper buy points.
And the rest is history
And the rest is history
By constantly improving your process, routines, and system you will become more consistent and your performance will show it.
Post analysis is a critical component of this incremental improvement.
Post analysis is a critical component of this incremental improvement.
Finally Rule #10 Avoid Style Drift.
To become an excellent trader you need to specialize and master one style, even one setup.
To become an excellent trader you need to specialize and master one style, even one setup.
Focus on becoming the best at one particular method and timeframe.
This focus will pay off as you build experience and learn the nuances and intricacies which can mean the difference between underperformance and super-performance.
This focus will pay off as you build experience and learn the nuances and intricacies which can mean the difference between underperformance and super-performance.
Mark was able to produce a tremendous return of +331% in 2021 through swing trading.
He strung together singles & doubles to compound and practiced strict risk management.
To learn more about Markâs style you can watch my interview with him here:
He strung together singles & doubles to compound and practiced strict risk management.
To learn more about Markâs style you can watch my interview with him here:
In contrast, David Ryan has a slightly longer timeframe and likes to play leading stocks in leading groups over time.
It certainly works for him and he was able to win the US Investing Championship 3 times in a row for a 1379% Compounded Return.
It certainly works for him and he was able to win the US Investing Championship 3 times in a row for a 1379% Compounded Return.
To learn more about David Ryan's Trading Methodology check out his interview here:
Despite their differences, by specializing in one style both have become Trading Champions.
I hope you found this thread helpful!
Be sure to:
1. Retweet the tweet below to pass it on
2. Follow @RichardMoglen
3. Subscribe to https://tradingengineered.substack.com/ for more posts! https://twitter.com/826247014715363328/status/1518219222932930560
I hope you found this thread helpful!
Be sure to:
1. Retweet the tweet below to pass it on
2. Follow @RichardMoglen
3. Subscribe to https://tradingengineered.substack.com/ for more posts! https://twitter.com/826247014715363328/status/1518219222932930560
Bonus!
Watch my second interview with Mark Here
Watch my second interview with Mark Here
Also, you can listen to Mark and David discuss these rules for yourself here:
