Stan Weinstein did two interviews in 2021 that are great complements to his book that I would highly recommend listening to if you haven’t yet. It’s amazing that the book was written over 3 decades ago yet remains as relevant as ever today and proves how timeless the material is based on how Stan discussed elements of Stage Analysis the same way he did in the book in 1989.
The following is a compilation of notes that I took from both interviews:
- To be successful he had to put his economic degree on the side and be totally technical. It’s all about supply and demand.
- It’s not the news but how the market reacts to the news.
- All breakouts are not of the same quality – you must analyze the stock using the attributes of a high quality Stage 2 breakout.
- The market becomes much easier when you simply understand the 4 stages of Stage Analysis and how they work. General awareness of these stages by itself can improve your understanding of the market tremendously.
- The Forest To the Trees Approach – start with the market, then look at the best sectors, then find individual stocks breaking out.
- You can improve your winning percentage dramatically with Stage Analysis (I’ve seen that in my own trading). Stan says he thinks its possible to have a 75% win percentage if you only focus on the best Stage 2 breakouts.
- How you handle a losing position will make you a winner in the market. When you’re wrong you have to get out of the trade and look for the next trade.
- The number of high quality breakouts gives you a good indication of how healthy the market is. And the number of stocks breaking down into Stage 4 also provides information on the market. Follow the leading stocks and the lagging stocks.
- Investor should buy half the position on the breakout, if it doesn’t work then sell it. If it does work and continues look at add more on the pullback. Volume should decline on the pullback.
- If you’re choosing between two breakouts always pick the one in the hot group. Odds increase dramatically.
- Investors can take 25% off when stock is extended, and add back more on a dip to the 50dma. Traders should exit any stock that breaks the 50dma, and investor should be cutting back on the stock.
- Losing positions – how you handle losers will ultimately determine whether you’re a winner in the market or not. Must blow out of positions that aren’t working.
- Each day in the market is a tug of war. When you see who’s winning that’s the ultimate reality.
- At the end of the day the tape does tell all. The market is truly looking ahead and is a discounting mechanism.
- Only the liars are always right.
- Always measure risk/reward and make a value judgement on the probabilities.
- Stocks bottom a lot differently than they top. When stocks top they often do it individually and its a process.
- Buy and sell to the sleeping level. A little more conservative with position sizing. 5% of your account is a good position size to not have a losing position damage the portfolio.
- “One decision stocks” all you had to do was buy them was a thing in the 1960s. Same thing is happening today with “stocks only go up”.
- Uses the 200dma now more than the 30-week MA and the 50dma. But its still the same concept of 4 stages. 50dma is for shorter term trading and 200dma is for the long term trend.
- Stage 1 you don’t want to try and catch a bottom because a lot of base building can take place before a stock starts moving higher.
- Stage 2 breakout is where you go pedal to the metal. Not all breakouts are of the same quality. Need increase in volume on the breakout or could be a false breakout.
- Like to see at least 3 times normal volume on the breakout.
- Relative strength is important on the breakout but even more important is group agreement on the breakout. If you have two charts the one in the better group on the breakout is the stock to go with.
- Healthy Stage 2 moves will have corrections but they tend to hold the 50dma. Stan likes to reduce the position below the 50dma. When corrections occur want to see volume contracting.
- Said volatility is more extreme now than he’s seen in 50 years of watching the markets.
- If a stock breaks out and doubles the 200dma very quickly you don’t have to be a genius to know to take some profits. Take partial profits in extended stocks.
- In Stage 1 when you’re building the base the news is less than thrilling. In Stage 3 the news is usually good and people might be first discovering something from the news. In Stage 3 stocks often don’t go up on good news and a breakdown of the 50dma occurs. When you break support and the 200dma you rollover into Stage 4.
- Talks about how when Bitcoin broke out nobody was talking about it. Now the news is talking about it but it’s not going up anymore.
- Stocks can fall on their own weight so don’t need to see high volume on the breakdown.
- Market from early November (2020) to mid-March (2021) was like shooting fish in a barrel. When you start to get that genius feeling about the market its usually time to take some profits.
- Always ready to be wrong. Whenever I deviate from the market need to re-examine what I’m doing. The market is never wrong.
- V tops and V bottoms how do you think about those: perfect example is March 2020. Many stocks all turned together along with the indexes. If you don’t see stocks participating its less likely the V bottom will work. Learn to listen to the message of the market.
- Don’t let good stocks subsidize the bad ones: how you deal with losing positions determines how big of a winner you will be in the stock market.
- Buy high and sell higher. Make plans to identify where you are wrong on a stock.
- Highly educated people have a hard time believing a system as simple as Stage Analysis can actually work. Ego prevents people from changing their beliefs when they are wrong in the market.
- Fundamentals lack timing.
- His 10-year old granddaughter knew how to identify a Stage 4 stock and knew it was a bad stock but the CEO of the same company wouldn’t have believed it.
Stan Weinstein’s Interview on the RenMac Podcast
Stan Weinstein’s TraderLion Interview
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