Trading U.K stock market using Mark Minervini strategy

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14th Dec '18 by unwise2

1516 comments 108970 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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About the Author

Unwise2

Premium Member

1516 comments

unwise2

1st Aug '19

5d42f067bf743Chart-d4t4-solutions-172019

I haven't read about Wyckoff's method, however Mark's/David Ryan's method is fairly straight forward. The perfect setup has shrinking volume at least one day prior to the breakout, on the day of breakout the volume increases significantly. D4T4 was a textbook example of a perfect setup.

I'm not sure trying to mix 2 different methods together is a good idea even if they are similar.

Rusty2

1st Aug '19

You did exceedingly well if you got 280p for £D4T4, that is just below the all time high and there is usually about 8p spread. How do you judge when to sell?

unwise2

1st Aug '19

I never said I got 280p, what I posted said:

"The gain shown is the maximum possible, in reality you are not going to sell at the high but you don't need to to generate significant gains."

I should also add you aren't going to buy at the exact point of breakout, in practice you will buy a bit above it. Given the average (mean) gain is 40.8% if you were able to "catch" only half of the gains shown on average your average gain would still be 20.4% versus average loss of approx 6%. You don't need to buy at the exact breakout price and sell at the high to make a lot of money.

D4T4 is one of the winners I did trade, I sold at just under 270p.

How do you judge when to sell?

That's one of the most difficult questions in the world if you are in profit.

To be clear the lists I have posted aren't all the trades I have done, it's all the setups I found after looking through circa 1000 stocks. I did trade some of them.

HumourMe

1st Aug '19

I haven't read about Wyckoff's method, however Mark's/David Ryan's method is fairly straight forward. The perfect setup has shrinking volume at least one day prior to the breakout, on the day of breakout the volume increases significantly. D4T4 was a textbook example of a perfect setup.

In my 'quick review' I thought so too. I look forward to your loser volume review.

I'm not sure trying to mix 2 different methods together is a good idea even if they are similar.

I'm not sure that they are different. They just have a different focus (Wyckoff Stage 1/ Minervini Stage 2). Wyckoff preceded them by some time. By comparing with Minervini my understanding of Minervinis explanations increased (way more than re-reading Minervini - it also increased when I looked at Weinstein again and revisited CANSLIM - may be it is just me but I feel I understand better when comparing and contrasting). I'd be very surprised if Minervini hadn't looked at Wyckoff during his own studies. Possibly not, however, they both reference Livermore and I don't think their interpretations contradict. Also I have to say that the link isn't to 'original Wyckoff' but to a synthesis of his writing and who knows what other influences may have flavored interpretation.

Anyway, to bring this back to the thread purpose and because I'd not shared and you have been generous with doing so, here is "how I'm doing". Both last year and this I've been near breakeven and at the moment I am 95% cash. I've been learning how to trade more actively and found Minervini a great guide. All errors made, I've clearly identified as those of the follower : ) .

As Minervini advises, I've scaled back position sizing and become much more patient. My win/loss ratio last year was 36% and this year is currently 46%. This year I've made 112 complete trades; far too many, 98% by limit orders set at the weekend. The biggest gain was 3x the largest loss (29% vs -11%). 56 trades averaged -5%, 44 averaged 7% (12 stopped out at breakeven, after being at least 5% up) . My analysis of these was that the breakouts were good trades. My big losses were a result of chasing momentum and suffering from FOMO (fear of missing out), often perfectly capturing the turn. My timing has completely validated SEPA to me as a better approach. My maximum account drawdown from a high this year is 4%. I'm 1% up. So a helluva lot of activity for no real effect. Except for the learning.

Reading about other techniques has helped develop my sit out power. My SIPP is half Euro and half sterling. Currency fluctuations have had a greater impact than my trading.

unwise2

2nd Aug '19

Thanks for sharing your thoughts, may I ask how many of the 112 trades were U.K stocks?

(12 stopped out at breakeven, after being at least 5% up)

Moving your stop up to breakeven after only 5% seems too soon (MM usually does it around 10%) have you checked what would have happened to those 12 trades if you hadn't moved you stop?

I choked off what would have been a big winner by selling when a stock reached breakeven but didn't break through it.

HumourMe

2nd Aug '19

Thanks for sharing your thoughts, may I ask how many of the 112 trades were U.K stocks?

55. These were a mix of trend following, breakouts and swing trades.

Moving your stop up to breakeven after only 5% seems too soon (MM usually does it around 10%) have you checked what would have happened to those 12 trades if you hadn't moved you stop?

:-) I'd belatedly come to the same conclusion. A visual inspection suggests 10-15% trailing (from low) and/or selling when supply manifests/ evidence of consolidation/ below last low, would work better. I'm planning to investigate this further.

unwise2

2nd Aug '19

Yesterday I posted:

"I have now looked at the volume around the breakouts of the winners listed, 15 out of 29 had what I would describe as high volume. Some were very obvious like d4t4 and some were a bit borderline."

The result seemed a bit inconclusive to me. Before analysing the losers I decided to set a specific limit of 150% or more of the 50dma for a breakout to qualify as high volume. I have rechecked the winners using that rule and the result changed slightly to 14 out of 29.

Only 4 out of 27 losers qualified as high volume, which means if you had traded only all the high volume breakouts in H1 your win/loss ratio would have been 78/22%.

Before anyone starts thinking I've found a magic bullet I would stress that this is a very short time period and it could be tricky to judge intraday if a stock is going to trade 150% or more. Also I have noticed that the volume traded can sometimes vary on different websites. I used Investing.com to check the winners and losers because it shows the 50dma on volume.

dmjram

2nd Aug '19

Dark pools are an issue for intra day volume as well - all the trades are included eventually but the data isn't available when you're making trading decisions during the day.

Won't be much of an issue for the smaller caps but will be as you move up into the FTSE350 I would think.

unwise2

2nd Aug '19

Do you know the time limit for dark pools to report trades in the U.K?

dmjram

2nd Aug '19

Under EU regs, they are required to be reported as soon as possible post completion of the trade.

From memory, David Ryan said in an interview that in the US all the volume is included by the close so may well be different over the pond.

Problem remains that you're relying on the integrity of same institutions that rigged LIBOR and the like - and they also have previous in their dark pool operations. In addition they game the regs with semi dark pools side stepping the full reporting requirements.

"Barclays has admitted misleading investors and violating securities law in the way it operated the pool. It will pay a $70m fine.
Credit Suisse will pay $60m and another $24.3m relating to other violations."
https://www.bbc.co.uk/news/business-35456219

"The two winners in all of this will be the lawyers (always ready to assist with regulatory matters) and the incoming wave of regulatory technologies (or ‘regtech’ startups), which will help banks and trading venues to adjust to new regulatory requirements."
https://financefeeds.com/europes-dark-pool-days-numbered/

nicobos

6th Aug '19

Anexo (LON:ANX) breaks out again after a very good trading update statement. Moved out of a nice IPO base previously and seems to be in a good stage 2 base with some momentum behind it.

Very illiquid so not necessarily one for a large position or tight stops though.

I like the look of Network International Holdings (LON:NETW) as well. Building a nice IPO base and results due soon... trending in the right direction.

unwise2

6th Aug '19

5d49665d1f583Chart-spirent-communication

Spirent Communications (LON:SPT) broke out this morning, but it has fallen back into the handle. For some unknown reason the chart doesn't show it has been as high as 172p today. It reported H1 results last week.

Rusty2

6th Aug '19

The 172p price seems to be wide spread at opening, the price soon narrowed and fell to around 165p. So does 172p really count if it is just wide spread in thin trade?

unwise2

6th Aug '19

Have you got a list of trades with the bid/offer spread for first thing today?

FYI I haven't bought any, markets are jittery at the moment.

Rusty2

6th Aug '19

Not any longer but I can see on my brokers chart roughly the prices. Were wide before 9am. So I would not say it's breakout, if the sell price was 163p at around 9am. This is Minervini tweet yesterday "Got stopped out of a few positions today. Some were partials at breakeven. Thankfully, I had relatively light exposure going into today. Looking for reentry from heavy cash position. One day at a time."

Gromley

6th Aug '19

FYI here are the early trades for Spirent Communications (LON:SPT) this morning.

Trade No	Price	Volume	Type	Bid	Offer	Time
9	167.536	486	O	166.6	173.8	08:01:43
8	167.014	359	O	166	173.8	08:01:05
7	166.8	10000	O	166	173.8	08:00:44
6	172.084	54	O	166	173.8	08:00:36
5	166.4	23891	UT	158.6	159	08:00:20
4	159.2	170	O	158.6	159	07:17:56
3	158.627	7794	O	158.6	159	07:17:56
2	159.2	831	O	158.6	159	07:17:56
1	159.2	5812	O	158.6	159	07:17:56

Trade 6 : 54 shares at 172p looks a bit rogue. The apparent spread persisted for a few more trades (but less than a minute) but no other trades were above 168p as far as I can see.

unwise2

6th Aug '19

Thanks for posting that, I wouldn't consider £93 worth of shares traded a breakout. My L2 only shows a certain amount of historic trades and I wasn't able to look back to 8AM this morning.

Gromley

6th Aug '19

Yes I agree

In fact does Mark M even use intra-day indicators of breakouts?

HumourMe

6th Aug '19

unwise2 in post number 668 and 669 posted some recent winners and losers from Minervini type setups.

I managed to download data for 41. 15 (mainly AIM) that my broker doesn't offer I can't get easily so I've ignored them. This is too small a sample for anything but indicative conclusions.

The clear positive expectancy was great to see. Most strategies, including my own this year, don't seem to demonstrate this so clearly. Investigating these examples have revealed where I've got room for improvement. So thanks again unwise2 :-)

I used these to look at various stop loss strategies. This is a very crude exercise and ignored support, resistance, consolidation etc.. I just saw this as the opportunity to do a bit of digging. The baseline (top row, unlabelled, below) was simply holding to last Friday. I didn't expect it to do that well.

Stop losses investigated included:

Trailing varieties (from high, low or close) at 0, 0.8, 0.85, 0.9, 0.95 of price (so precisely none, 20%, 15%, 10% or 5%).
Entry stops - set below buy price on the grounds that one doesn't expect a breakout to dip too far below the breakout price - none, 0.9, 0.93, 0.95 of entry price).
Breakeven stops - when to move a stop to breakeven - in this case triggered by the rolling high; I've been too keen to do this. Triggers set at Nothing, 1.05x buy price, 1.1x, 1.15x, 1.2x)
I also threw in profit targets of no target, 1.05x buy price, 1.1x, 1.2x, 1.5x.

Those give 12500 combinations but approximately 2/3 were clearly not logical. I also restricted trailing stops to be H or L or C based, leaving 421.

I used the buy price identified for purchase and 'held' until stopped out (so entirely mechanical and artificial). If stopped out, or target was reached, the price used was the lowest of the stop/target price and the next days open. If still held on Friday the close was used.

Below are the top 20 results. You might have to right-click and view in a new window/download to see them.

The blank label at the top is 'buy and hold'. During this period that would have been a reasonable approach, however, it provides no downside protection and might not compound as effectively. The 'days held' shows this.

Trailing low at 10% surprised me with its dominance of the top places (I thought trailing high at 15-20% would be superior). An entry stop, giving back no more than 7% is cited by O'Neil and Minervini. This appears to be supported. A breakeven stop between 10 and 20% seems to be complementary.

Not many conclusions can be made due to the small sample. I'll stress that for me it was an exercise in investigating breakeven stops.

I also tried to find evidence for a volume on breakout pattern, but could not. However, higher relative strength (based on 1 year RS vs FTSE 250) seems to boost the winners (even smaller sample due to 1yr RS requirement).

To get the higher and lower bands I normalised RS (against itself, one year ago), then took the one year slope - then simply created two buckets. All shares that were included probably had good RS anyway, due to the trend template.

unwise2

6th Aug '19

Yes

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Trading U.K stock market using Mark Minervini strategy

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Unwise2

1516 comments

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