Trading U.K stock market using Mark Minervini strategy

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14th Dec '18 by unwise2

1516 comments 108972 reads

Mark has been interviewed by Stocko a couple of times and from some of the comments on various threads there appears to be a few of us using his methods to trade the U.K stock market. I thought it would be useful to have a dedicated thread where we can discuss how well its working.

Personally I have been in cash at least 50% since the end of May and at 95-100% since early October. Getting out of stocks as they roll over has protected me from any real damage.

I'm struggling to find many setups I want to buy so I am developing my "sit out power"

How is everyone else doing?

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Unwise2

Premium Member

1516 comments

Benson212

5th Jul '19

*** For some reason, this didn't load properly. Just my thoughts on using weekly charts as discussed above ***

I agree with you. William O'Neill strongly recommends investors to look at weekly charts, in conjunction with the daily, to determine whether the stock is in an uptrend or not. In other words, buy the break out on a daily chart which coincides with a weekly bullish chart pattern too.

I noted some traders identified a potential VCP on Solid State (LON:SOLI) but I had some concerns. Although the daily chart is in an uptrend, when you look at the stock on a weekly chart, it lacks upside momentum (see below)

A good question traders should ask themselves is "would I trade this if it was a daily chart?" William O'Neill would argue a stock with a bad weekly chart is somewhat failure prone. Solid State (LON:SOLI) broke out of a nice VCP in late 2013, that was when you should have been invested!
On the other hand, buying breakouts in a trending weekly can significantly improve your odds of success. The chart below is Halma (LON:HLMA) which, showed excellent relative strength during the 2018 correction and broke away nicely from a cheat pivot on 01/02/2019.

This isn't a strict Mark Minervini principle (more William O'Neill) but it does stack the odds further in your favour. Mark shows lots of weekly VCP examples in his books, so I imagine he looks at the weekly too. Determining the trend on a weekly chart has certainly helped me improve my accuracy when trading US shares.

cidunn

5th Jul '19

RE Cloudcall (LON:CALL) - Hi guys first time poster on this thread but I am avid reader and both of MM books. Thank you all for your contributions, so I'm a noob and still getting my head around all this. I ‘think’ I've seen a VCP in Cloudcall (LON:CALL), the MA's have literally just lined up and poised for potential breakout above ~117p, volume is drying if the base is from late Jan 19 or could it be early Sept 18.

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Now have I interpreted all this correctly?

Thanks in advance.
All the best,
CID

llwydiaid

5th Jul '19

With regards to weekly charts. Your weekly chart of Solid State (LON:SOLI) shows a 200MA i.e. a 200 week moving average. When Minervini uses weekly charts e.g. pg 133 of his first book, he shows 30 weeks (150 days) and 40 week (200day) moving averages. A 200 week (1000 days) moving average is very slow moving. Using 30w and 40w averages Solid State (LON:SOLI) was Stage 2, but you're right to note that 2013 was much better!

monions

5th Jul '19

Hi Cidunn,

To me Cloudcall (LON:CALL) is a weak contender.

I can see your reasoning for the VCP and it has been in a weak uptrend since Dec - but that was also after a pretty large collapse from the 190 highs this time last year. The weekly chart started up in Dec, but only managed to get above the 30WMA in Feb, it fell back again, but since April has stayed above it. Your reasoning is good.

However for me there are a number of issues.

From a technical point of view:

For most of this year the MAs have been out of sync. The 200 fell below the 50 end of April, and the 200 has continued to fall since, only recently flattening out. The 150 has only just crossed above the 150 (2/7). So still early days on the MAs.
The daily chart has a lot of 'doji' bars (tiny flat bar) - these show no price activity on those days, sometimes spanning a number of consecutive days. In my view this is weak price action with little or no volume - this can be good on reversals but not in a trend.
To breakout it needs to convincingly break 114. It's tried this twice recently (26/6 and 2/7). But each time fell back on the following day. Importantly, in each case the pull back volume was higher than the upthrust.

From a TA point I would say this is a possible end of a Stage 1, but not yet beginnings of stage 2.

But that's not the end of it. Most talk on this thread is about TA (and I'm grateful for Unwise in creating it as there isn't enough TA discussion on Stocko.) However, when looking at candidates you need to look at the company as well.

For me Cloudcall (LON:CALL) is a shocker and I couldn't trade it.

Almost every metric I look at is negative or n/a. This is basically because it is loss making. Operating profit, EPS, EPS growth, FCF, ROC, ROE all negative and most falling. One basic rule I have is that they must be making a profit.
Mcap is £30m, which is below my threshold.
Companies like this have more potential to disappoint than to positively surprise. I think that may have happened when it released it's last results on 27/3. May be better to wait until the next results and see what the reaction is (I think they are end of Aug).

I believe it has a lot to prove both technically and fundamentally. Others may feel this is a recovery play, but I don't feel it fits an MM or momentum style play.

Hope that helps.

Mark.

Rusty2

5th Jul '19

I had a look at Cloudcall (LON:CALL), yes it's loss making which puts me off, also there was a large EPS forecast fall in April but you may want to read Paul Scott's report yesterday, there seems to be a turnaround in the US market, so for me one to watch. I'm not keen on loss making companies but some do take off such as SHOP and a few other american shares. I agree I think some are relying too much on charts, Minervini relies on fundamentals as well, growth is a keen element. Several Minervini screens seem to ignore EPS growth forecasts.

cidunn

5th Jul '19

RE Cloudcall (LON:CALL) @monions @herbie47 - thank you both for your input. It's pleasing my thought process isn’t too wonky on MM's approach of looking for VCP's.

Yes @unwise thanks for this thread, it really helps with the books and see how others are interpreting and yes fundamentals are still a big part of it all.

@monions

1. "For most of this year the MAs have been out of sync" forgive me, does MM look for the MA's to be in sync for a certain period of time?

2. 'doji' - thanks I've always wondered how treat these, so in short the lack of price action is weakening signal. Although doesn’t MM look for this and then a one off jump and closely watches the increased price action post a breakout?

3. Very good point on the pullback being higher, I hadnt thought that bit through frankly although was aware from the books.

Finally tell me a little more about weekly chart reasonings and the 30WMA - I'm not familiar with this, like I say I’m complete novice, but with fair analytical brain.

Thanks in advance and all the best,
CID

monions

5th Jul '19

Hi,

Hope that helped - and none of this is easy. Even with rules, there is still room for interpretation - at the end of the day, it's your money you are putting on the line, so it's your final decision.

MMs basic rule on the MA is that they should be stacked correctly and that the 200 should be rising for at least one month. This gives a stronger indication of the underlying trend, and a better chance of success on any price action upwards. As a trader, you can decide on how aggressive you wish to take the MA signals, some would take them crossing as the signal, some will wait to see how things develop. As an aside I also use short range EMAs (8/21) for short-term trades, but that's outside the scope of an MM discussion.
Doji and candlesticks aren't really used by MM, I believe he uses more traditional US style 'stick' charts. Doji means 'indecision' (or something like that). It shows that neither the bears nor the bulls are in control. As you say, these can be used for reversals, and they can. They can show that towards the end of a trend the dominant force (bulls/bears) are starting to lose control - meaning there may be a reversal coming up. These usually include tails, above or below the body, showing that there is a 'fight' to gain control. But the ones in Cloudcall (LON:CALL) (7-20 June) are totally flat showing basically nothing happened. I see these as weak, shares that don't have much interest, therefore not much pushing them along - you often see them in low volume AIM shares. That's my view on them. Doji have their place in a trend, especially with other price action signals.
The 30week MA was promoted by Stan Weinstein and Bill O'Neal, both of which MM used as inspiration for his style. 30 weeks are roughly 150 trading days, so very similar to a 150day MA (but as it's a weekly chart you have to make the translation to weeks).

Having written all that it sounds like I know what I'm talking about :-) - but actually I'm still learning all of this. It is one thing to know the theory and another to successfully put it into practise. These are my thoughts, others may have a different view, especially on the interpretation bits. This thread is good as people can suggest shares, we can see what really works in the UK market.

Hope that helps.

Mark

BTW

Andrea suggested a thread on TA and simple charting. I think this would be a good idea - not to act as a basic primer to TA, but to discuss what different methods people use, which have been successful and which people have found over time to be less useful. Stocko tends to be fundamental biased, there have been a couple attempts at TA threads, none of worked well. This MM thread has worked very well, I guess as it has the tangible MM rules to hook discussion around.

Rusty2

5th Jul '19

I don't think Minervini would be trading a share such as Cloudcall (LON:CALL), the mcap is too low, the spread too wide and it is probably not liquid enough.

psin

5th Jul '19

Hi Herbie47
reference your comment [614], "really not sure whether to sell this one now or hold on."
Please read pages 83/84 of MM's book, Trade like a Champion; THE SELL HALF RULE. It opened my eyes and it is so simple. The maths do not lie.

Rusty2

5th Jul '19

Thanks but not a big enough amount to split in half.

cidunn

5th Jul '19

@monions most certainly does, thanks for sharing your thoughts and yes I can't hurt having TA/simple charting forum too. I for one would benefit, although wouldn't be able to contribute much.

@herbie47 I hear you - i've been spending a fair amount of time trying to see a VCP in the wild from my own analysis and learning the characteristics - I'm absolutely stocked at the quality feedback.

All the best, CID

HumourMe

6th Jul '19

I do hold Kainos (LON:KNOS), bought at 497p 14 March, 2019, the problem with screens is you don't know when the shares would first qualify and it is quite difficult to work out. I think it is a bit extended now, be interesting to hear some other opinions on it.

I entered a few days later, however, exited 1st May for around break-even as I'd moved my stop up and it was hit (the green and red dots). Initially looking at the candle chart everything looks healthy, but adding volume shows a spike with little price movement which could mean supply/distribution. So that is a warning sign. Large volume without price movement in any direction is suspicious.

Looking at a point and figure chart (log based, full range of OHLC price information, 2.5% boxsize, 3 box reversal - unfortunately Stockos version can't replicate this) shows a brief (healthy) reversal with a current 'demand' column. A new low would be made at 617 (unusually, for the same horizontal space less time is shown reflecting intra day volatility). I justify this as Minervini mentions them in passing on p192 of 'Wizard'!

Moving back onto more standard approaches and looking at its relative strength everything seems OK, although over the last month it is flattening (I used a FTSE 250 ETF as the benchmark). However, it has done this before, but on lighter volume and weakness is post spike.

Personally, if I were still holding, I would have moved my stop to around 590-615 depending on how the rest of my portfolio was doing. I tend to be too aggressive with stops which I'm attempting to address, so take that with a pinch of salt.

I didn't intend to comment on the other mentions but was on a roll so ...

AVEVA (LON:AVV) is similar in my opinion. Entered 15/3. It has hit my target and my stop is just below its last reaction low. Volume spike on 21/6 a warning. I'm happy to hold or sell .

Ab Dynamics (LON:ABDP) looks like it is consolidating. Certainly some tight days and volume drying up. Ah - AIM. Knocks it out for me. Otherwise I'd be interested.

Games Workshop (LON:GAW) is on my PnF breakout list, although it mostly qualifies for this due to price action on the 21/6 on heavy volume. Prior to this and the subsequent reversal it would have been 'high pole warning'. I'd like to see more congestion in a range, before considering a potential buy on a new high (compared to KNOS much more time is captured).

Is the volume spike a warning? There does seem to be some heavy days with little price movement when candles are used for illumination (recent heavy days illustrated with vertical red lines):

Greggs (LON:GRG) doesn't currently offer a safe congestion based entry. I got thrown out on 2/5 for a loss, so my timing was very poor on this one. It is steadily climbing though, so I could understand if a trade plan was to buy with a tight stop and lots of hope, before trailing a stop. I'd suggest that this isn't very SEPA though.

cidunn

8th Jul '19

Solid State (LON:SOLI) - again forgive me noobness, but did this just breakout today on huge volume?

All the best,
CID

HumourMe

8th Jul '19

Solid State (LON:SOLI) - again forgive me noobness, but did this just breakout today on huge volume?

Not quite. It reached its previous high and it looks like a lot of people took the opportunity to exit.

I think a breakout would need a convincing close above the previous high.

HumourMe

10th Jul '19

Just as a quick follow up to this comment:

I then tried adding to the screen the additional criteria of Spread < 100 bps and Risk Rating = Conservative, and that gave me about 14 candidate stocks, all of which look to me like stocks I might seriously consider for my portfolio.

For my holiday (re-)reading, I've been slowly going through Minervinis books again. I've picked up several things that I'd previously missed. One quote from Think & Trade Like a Champion, p47 concerned volatility...

If a stock is highly volatile, with dramatic gyrations up and down, it's going to be a difficult issue to trade using a relatively tight stop loss to control risk. ....
A risk-first approach would tell you to find another candidate.

So your thinking is in perfect alignment with Minervini :-)

On p39 of 'Champion' under the summary of 'violations soon after a breakout' the 4th bullet reads:

More bad closes than good closes.

I may have missed it, however, I don't think that these are defined, except with reference to two charts. I've interpreted these as determined by proximity of close to high/low. Does anyone have a formal definition or can anyone point me to the Minervini one?

Another thing I picked up (which may be important if we see a bear market) is the need for patience. So while waiting for the perfect set up I thought that I would throw in an additional question for anyone:

Does the trend template definition change materially between the two books?

Finally, I thought that I would take this opportunity to comment on the relationship between the two books. They are complementary and due to repetition of key parts; also standalone in that reading 'Wizard' is not required to understand 'Champion'. If you got value from one of them I would recommend the other. Choosing just one though, would be a difficult recommendation as it depends on where you currently are on the journey. If pushed though I would recommend them in the order published, i.e. Wizard first.

HumourMe

10th Jul '19

Having written all that it sounds like I know what I'm talking about :-) - but actually I'm still learning all of this. It is one thing to know the theory and another to successfully put it into practise. These are my thoughts, others may have a different view, especially on the interpretation bits.

100% agree with this sentiment. I don't think the learning ever stops. I'm not even sure that, apart from risk management, what I think I know about technicals is relevant. Balanced against that I similarly doubt my 'knowledge' of fundamentals.

The 30week MA was promoted by Stan Weinstein and Bill O'Neal, both of which MM used as inspiration for his style. 30 weeks are roughly 150 trading days, so very similar to a 150day MA (but as it's a weekly chart you have to make the translation to weeks).

Stan Weinsteins was possibly a Mansfield 30 week weighted moving average link. This approximates to a 21 week exponential moving average. I've no idea how to equate this interpretation to days. However, the broader point stands, in that for trend following, make sure that the longer term trend is up, determined by some measure.

unwise2

12th Jul '19

The U.K continues to be a "hard penny" environment. Over the past 3 months my win loss ratio has been 33.3%/66.6%. My gains have been bigger than my losses and my position sizing has been small so I am effectively at breakeven.

Avast (LON:AVST) has broken out of a 2 month base after setting up a handle, it has also created a 9 month ascending base. It's not an ideal situation because volume didn't contract very much in the handle (volume was half 50d average the day it made it's low in the handle).

Rusty2

12th Jul '19

I agree about the UK market this year, although I have missed quite a few, I'm finding the US market easier with more opportunities.

I have looked at Avast (LON:AVST) before, debt is still too high for me.

llwydiaid

12th Jul '19

Avast (LON:AVST) I've been stopped out a couple of times in the past year so I'm staying on the sidelines. Not the easiest of charts to read.

unwise2

12th Jul '19

Agree Avast (LON:AVST) is a bit tricky, I bought some yesterday and I am using staggered stops.

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Trading U.K stock market using Mark Minervini strategy

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Unwise2

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