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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Unwise2

Premium Member

1516 comments

HumourMe

7th Aug '19

A slightly longer term VCP developing ? Boohoo (LON:BOO) - weekly scale. Correction from the peaks in the middle was around 49%.

AnonymousUser340823

7th Aug '19

Selling depends on investment style surely?

If "trading" - then it's at the point where you've gained a multiple of your risk. E.g. 1000 with a 5% stop loss, is a risk (R) of 50. Therefore you'd sell when your trade is up by at least 50 from the buy point. Letting winners run etc is irrelevant as the goal is to be up a multiple of 50. As capital grows, so does R, which means your average gain (based on making a multiple of R) will grow. e.g. capital grows from 1000 to 1100, R is now 55 with the same 5% stop loss.

llwydiaid

7th Aug '19

Thanks very much HumourMe for the detailed analysis of unwise2 figures. I'm not sure I understand the details of the figures but the conclusions are useful as I tend to use too tight trailing stops:

"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."

Are there any conclusions to be drawn from the profit target scenarios?

HumourMe

7th Aug '19

Are there any conclusions to be drawn from the profit target scenarios?

So far one of two contradictory conclusions. Option A, is that I need to move the target range tested upwards (say 25, 35, 45, 55). Option B, is that due to the potential of asymmetric returns having a mechanical target closes the few really big winners too early.

I've done some further work that looked at median, 75th percentile and ultimate high reached and personally favour explanation B. So some other selling rule would be better but I can't easily program that.

I have an offer to get the missing data so I'll be re-running this in due course.

Apologies for not providing a key. I meant to, then forgot.

In the meantime a little further explanation:

Neg_n and Pos_n are the number of negative and positive (>0) trades.

Neg_avg and Pos_avg are the average returns.

Exp_val is the expected value overall or overall average return.

Pc_pos is the percent of positive outcomes

The 'day' columns refers to calendar days held, by whether a trade outcome was negative or positive; negative trades close quicker.

unwise2

7th Aug '19

Boohoo (LON:BOO) looks like a long (48% deep) base, but the most recent "handle" was 20% deep and the different DMA's have been intertwining for a while. It may yet form another shallower handle around 250p.

unwise2

8th Aug '19

After a false breakout on Tuesday Spirent Communications (LON:SPT) traded a vast amount of shares above 169.5p yesterday, volume was triple 50d average.

Rusty2

8th Aug '19

Spirent Communications (LON:SPT) does look tempting but H1 pretax profits were only up 7%, not sure there is enough growth there.

Anyone looking at H & T (LON:HAT) recently? With the price of gold @ $1500 and £ falling it could well benefit.

unwise2

8th Aug '19

Spirent Communications (LON:SPT) does look tempting but H1 pretax profits were only up 7%, not sure there is enough growth there.

That depends on which measure you use:

"Adjusted operating profit growth of 16 per cent, which together with a lower tax charge, resulted in adjusted EPS growth of 22 per cent."

Cashflow from operations was also strong $57.2m vs $21.3m for 2018 H1.

HumourMe

8th Aug '19

I've rerun the stop loss exercise with the missing shares now added (thanks Gromely) . So with 56 trades, still too small a sample for anything but generalisations. Also note that I've done my best to make prudent assumptions, avoid look ahead bias etc.. but I may have made an error that has slipped past me, despite several hours of aggressive staring at my code.

I used the same holding period, so the comparison doesn't include holding Burford this week (the actual cut offs were 168 days after the buy date or last Friday). This cut off artificially reduces holding periods and probably depresses gains but it does so consistently.

I dropped trailing high and close and expanded the remaining categories:

Trailing low: None, 0.8x highest low, 0.85x, 0.9x, 0.95x

Entry stop: None, 0.9x to 0.94x entry price

Break-even stop trigger: None, 1.1x, 1.15x, 1.2x, 1.25x high reached

Profit target to trigger exit: None, 1.1x, 1.2x, 1.3x, 1.5x, 1.6x

As previously, I used the buy price identified for purchase and 'held' until stopped out (so entirely mechanical and artificial). If stopped out, or if the 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. The first table focuses on the expected value per trade for each strategy variant. The second focuses on holding periods. Why is the latter important? The answer is potential opportunity cost.

Column headings are:

Neg_n and Pos_n are the number of negative and positive (>0) trades. Neg_avg and Pos_avg are the average returns for each type. Exp_val is the expected value overall or overall average return.Pc_pos is the percent of positive outcomes (it is nice, but not essential, to win more than lose).

The 'day' columns refers to calendar days held, by whether a trade outcome was negative or positive; negative trades tend to close quicker.

The top row is holding to Friday. Conclusions haven't changed. A trailing low of 10% now dominates clearly. An entry stop approx 7-8% seems a good value. Moving any stop to break even would be warranted when the high gets above 10-15% the open price - this probably only kicks in for shares with a large daily range, otherwise the trailing stop will preempt this. I'll stress again there are much better selling rules than these (such as potentially moving stops up when shares begin to enter tight consolidation regions); I was primarily interested in exploring the initial stop and the break even stop.

Best 20, days holding (remember the artificial cut off). Positive outcomes take ~ 3x as long.

And as contrast, for those interested, the worst 20 (worst at the top). First of all the expected values. These variants all have a target of 20%. This might not be all bad though, as in the table below this one you'll see a better quicker holding period. We all know from our fundamentals that rapid stock turnover is a good thing, don't we? :-)

And the final table, 'bad days'.

As to the profit targets, with frequent opportunities and a positive expected value, you may want multiple quick gains to take advantage of compounding. Those thinking of this should factor in transaction costs and spread.

PhilHofGrowYourDough

10th Aug '19

Has anyone experimented identifying VCP's using Average True Range over a variety of periods?

PhilHofGrowYourDough

10th Aug '19

It looks promising as an approach, see chart below ADBP with 3 times periods of ATR below. I used 60 days, 25 days and 14 days. Sadly currently ...

1) You can't add more than one ATR indicator/overlay to a Stocko chart
2) You can't screen for ATR
3) You can screen for volatility but you cant change the period

HumourMe

10th Aug '19

Presumably you are looking for ATR14 < ATR25 < ATR60?

On a similar theme I've been thinking of keeping a running count of 'tight' days, to flag shares needing a closer look.

Indications of a lack of supply seem to be emphasised by the gurus when seeking patterns.

Currently I'm just seeking range bound shares for further inspection, over various periods.

As you say, currently the screener here, means a DIY or do it elsewhere, approach is necessary if the goal is to check fewer candidates. However, having gone down that route I'm beginning to consider that time spent on build and maintenance might be better spent on looking at more shares that pass the cruder Stocko screens.

PhilHofGrowYourDough

10th Aug '19

"Presumably you are looking for ATR14 < ATR25 < ATR60?"

Yes, I've also added ATR5 too, plus a requirement that ATR(5) < ATR(5) from five days ago.

There is definite scope elsewhere to do pick out VCP patterns using this approach and it could be that I'll need a few versions ...

One for short term VCP's and perhaps a similar scan based on weekly data for longer term patterns.

It could also be that volume characteristics could be included too.

I'm also interested in this screening approach to find candidates that fit into the Wyckoff Method. It could be that I need different screens for different phases, e.g.

1) A screen that identify Wyckoff Springs in Phase C of accumulation patterns as stocks that have been consolidating after a downtrend hit a new recent low and pullback.

2) A screen that can identify a Test after a Wyckoff Spring, i.e. a higher low after a Spring

3) A screen that can identify breakouts from consolidated trading ranges (Wyckoff
Phase D), possibly including an embedded VCP

Imagine combining screen 2, with a Stocko screen for High Ranking Contrarian's (High QV) or a Stocko Value Trap (High V) screen where you have the potential to catch the transition into a Turnaround Stock (High VM) and possibly a SuperStock as margins improve.

unwise2

12th Aug '19

Has anyone experimented identifying VCP's using Average True Range over a variety of periods?

Mark has said on his MPA service that anyone using ATR with his method is going to go broke. He also said ATR looks good on paper but is useless in the real world ( I think the exact word he used was terrible).

Rusty2

12th Aug '19

H & T (LON:HAT) as mentioned above is up over 5% today on higher than average volume, still below it's 52 week high but not by much now.

andrea34

12th Aug '19

H & T (LON:HAT) perhaps up as the results are out tomorrow, and people hoping for good things

Rusty2

13th Aug '19

It’s possible but some sell before the results, this time last year the share price fell.

llwydiaid

13th Aug '19

Thanks unwise2 for the data on Minervini winners and losers for the first six months. It's been very informative to look at the various set-up and I'm sure we could debate the validity of one or two of them. Looking at the losers, the notable one that "got away" was London Stock Exchange (LON:LSE) . Looking more closely at the chart, had your initial stop allowed for filling the 1 March gap, and been around 5-6% rather than 3.7%, a 50% profit would have followed. Hindsight is a wonderful thing!

unwise2

13th Aug '19

5d52bff7b811aChart-london-stock-exchange

I agree London Stock Exchange (LON:LSE) was a real heart breaker, after setting up a normal looking handle it fell below the initial stop loss only to immediately form a deeper V shaped handle and take off from there. It would have been possible to re-enter the trade on 3rd April with a 6.4% stop loss but I doubt anyone would so soon after being stopped out, which is why it isn't in the winners list.

llwydiaid

13th Aug '19

With regards London Stock Exchange (LON:LSE) . When the handle is tight e.g. < 4%, as in this case, is there an argument for putting the stop lower than the bottom of the handle? An initial 6% stop would have kept you in for the ride.

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Trading U.K stock market using Mark Minervini strategy

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Unwise2

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