The Trader: What can we learn from Mark Minervini

Michael Taylor looks at one of the US’s trading greats Mark Minervini and what we can learn from his strategies.

Wall Street

I wrote a few weeks ago about what traders can learn from Warren Buffett.

This week I’ll take a look at one of the trading greats: Mark Minervini.

Who is Mark Minervini?

Mark Minervini is a US stock trader who has been featured in the famous Market Wizards series by Jack Schwager.

He won the 2021 US Investing Championship for the $1m account division with a +334% return.

He’s written several books (all of which are recommended) although these books appear to be highly influenced by William O’Neill’s How to Make Money in Stocks and Stan Weinstein’s Profiting in Bull and Bear Markets. That doesn’t mean that they’re worth reading any less though.

Here are seven of Mark’s principles for trading success.

1. Concentrate and don’t diversify

Diversifying is classed as a ‘free lunch’ in stock market investing. I believe there is no such thing. Diversifying means spreading your capital around thinly across a lot of poor ideas.

By concentrating this means you focus on the best trades and wait. It requires patience because the market will always try to tempt you into sub-optimal trades.

Instead, try to develop what Mark calls ‘sit-out power’.

2. Approach each trade risk first

Trading is ultimately about managing risk. You should always calculate your stop loss and exit before you enter the trade.

You can do this use the free position size calculator on my website to help.

Pick a point at which you think the trade you’d be wrong on a chart and put this as your exit.

Then input your entry and the calculator will give you the correct number of shares to buy. Always check this before putting the trade on first!

If you relentlessly focus on the downside, you then keep the risk to the upside.

Don’t be tempted to move your stop lower either – this only compounds mistakes.

3. Trade directionally

Trading directionally means two things.

Firstly, you need to trade with the trend. This means you’re trading with the flow rather than fighting a losing trend.

Trying to pick bottoms is a gamble that the market is wrong and that it’s miraculously going to turn the moment you buy. Why would you want to do that?

Secondly, it means you never average down.

This is where traders throw good money after bad and chase losses.

4. Turn over your account

A trader’s goal is to regularly make profits. That means banking profits and moving onto better opportunities.

Never let a large profit turn into a loss. This is not only demoralising but also works against you.

Your trades should be achieving one of these three outcomes:

  • Small win
  • Small loss
  • Large win

By eliminating large losses (a sign of poor risk management) you now give yourself a fighting chance at survival and growth.

5. Conduct post-analysis often

Analysing your results is the single best thing any trader can do to improve their future performance.

This will help you identify commonalities in both winning and losing trades.

Your goal is to make more from your winners and lose less from your losers, as well as generate more ideas.

Once you’ve found your weak spots, you can then come up with a plan to improve them.

6. Sell into strength

This is difficult for many traders as most people always want to ride stocks higher. But knowing when to take advantage of selling liquidity is a great skill.

It’s always better to capture profits on the way up than sell into a weak stock (and potentially mark the price down).

Plus, if you’re ever in doubt, you can sell half of the position.

This means that you bank 50% of the upside and retain upside on the other 50% of the trade.

7. Avoid style drift

If you become a specialist in one part of the market you can then wait for your trades.

However, you will get stopped out repeatedly at times as markets chop.

This increases the temptation to jump on the latest hot stock or shiny new system. But don’t fall for it.

Stick to what you know works and have the discipline to keep following your rules.

Conclusion

Many of Mark’s principles sound simple. They are. But most people don’t want to follow simple rules and it’s our emotions that trip us up.

If you can act rationally and efficiently, then it’s likely you’ll see success in the market.

Those who react emotionally and have an ego often lose and fail to achieve their goals.

Michael Taylor

Buy the Breakout trading newsletter available at: www.shiftingshares.com/newsletter

LinkedIn: https://www.linkedin.com/in/michael-taylor-27bb295b/

This article is for educational purposes only. It is not a recommendation to buy or sell shares or other investments. Do your own research before buying or selling any investment or seek professional financial advice.


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