The book published in 2015 is an interview format by Mark Minervini, David Ryan, Dan Zanger and Mark Ritchie II. They are all successful stock traders in America. The participants chose 130 of the most relevant trading related questions asked by other people, to answer them in this project. Mark Minervini was featured in Jack Schwager’s bestselling book “Stock Market Wizards” which I have reviewed here in my blog. I have also reviewed Minervini’s two bestselling books “Trade Like a Stock Market Wizard” and “Think & Trade Like a Champion”. You can find the page with all book reviews from the main menu above.
There is a short description about each of the four traders at first to get an understanding about their backgrounds, and then the roundtable interview begins. The book has been organized into categories and each question is answered by the four traders at a time.
Introduction
This is the first section with questions labeled under this category. On a note, I have just recently finished a book about high-frequency trading (HFT) and here these four gentlemen are asked what they think about the HFT. While I freshly remember Rishi K. Narang protecting the industry from false accusations in his book “Inside the Black Box”, the momentum masters here are expressing great dislike about that industry.
One of the common things I notice among these traders is that their methodology hasn’t changed much in decades. There has been some smaller modifications but overall the foundation of their trading has stood the test of time. The three more experienced traders all started because of the money, the youngest Ritchie II got influence from his family of traders. If the traders had some success in the beginning, it was still a matter of time before it was all given back to the market. Only after studying the mistakes and learning more was the shift to becoming a profitable speculator.
Stock selection
The second section is about selecting stocks. It’s definitely interesting to read their thoughts about this topic. What they look in a company, how they trade IPOs, treating small cap vs large cap stocks, ideas about shorting and more is covered in this part.
Position sizing
This is without a doubt a very important subject in trading. It was an interesting read for me and I took some notes about diversification across names, capital allocation and risk size, scaling of positions. To be honest, they all seem to be pretty bold and aggressive about holding a few strong names and adding to winners. But this is probably how super performance can be achieved.
Technical analysis
Obviously a necessary subject to many. To be honest, their styles don’t seem to differ much. All of the four traders want to see the stock in an uptrend to buy and rarely do they buy a stock that is technically flattening and starting to turn up. It’s good to read about their thoughts on this subject and try to understand the mind work. As I have read two books by Minervini, I already understand something about the man’s approach. Price action and volume is what matters most to these traders when it comes to technical analysis. None of them rely too much on any indicators. Now, buying the breakouts vs pullbacks and defining them is the interesting part to leave for readers themselves.. 🙂
Fundamentals
I don’t use fundamentals at all. However, it’s useful to know how other mostly technical traders approach this part. I feel the four traders rely more on technicals and only then look at fundamentals if it’s going to support a strong move. Great insights about how to look at earnings, sales and growth; what to think of low P/E ratio.
General market
These gentlemen don’t let the overall market conditions affect their stock trading too much, but they do manage risk when the market starts to turn down. All of them find trading individual names much more profitable than the indexes.
Entry criteria
Their entries look very similar to each other, that is scaling in after an intraday breakout from a base on growing volume. Some also use pullbacks to add to winners.
Risk management
Some ideas about risk size overlap content of the position sizing section, but it’s definitely an important matter to go over twice. Ryan and Zanger seem to be more strict with their risk sizing rules, others express discretion. They all prefer not to scale out of a losing position but to sell all at once when stop loss is hit.
Trade management
I can recognize a lot in common about the styles of these four great traders. They all seem pretty active for watching intraday movements and acting on it fast, having tight stop losses and are out quickly if things don’t work. However, they may let winners run for weeks and months. It means their initial risk can be significant at rare times when a position turns heavily against but this is probably why they observe the intraday price action. On the other hand, such tight stop losses allow trading a relatively big size and get the most for the buck if things do work out.
Psychology
This has become one of my favorite topics during the past year. It’s just fascinating how much psychology is involved in trading. The four traders recommend to start small and build success to get confidence, but some other good insights and suggestions along the way there and in the last section “Final thoughts”.
My thoughts
Based on the interviews, all of the four traders seem to be discretionary by style. They are flexible in action, based on a specific scenario and the decision-making process is more based on the situation rather than fixed rules. With answers like “Sometimes I do this, and sometimes do that..” shows trading is more of an art for these guys compared to systematic trading that lets rigid rules dictate the decision-making and is therefore often referred to as science. Overall, it’s inspiring material with some advertisements of Minervini’s services in the end. If you feel this style of trading relates to you, then I recommend to skim the book but don’t expect any specific training on momentum from it.
Momentum Masters by Mark Minervini, David Ryan, Dan Zanger, Mark Ritchie II book link
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