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In this blog, we will focus on Stan Weinstein’s renowned trading strategy to identify and select good-performing stocks to consistently achieve profitable returns.
The stock market can be divided into four stages: accumulation, uptrend, distribution, and downtrend.
Your goal as a profitable trader is to accurately identify the uptrend when it is happening. By doing so, you can expect a higher return than day traders who only catch small ups and downs in between.
Mark Minervini, the famous stock trader and author of “Think and Trade like a Champion,” is a good example of achieving a +33,544% ROI in 5 years with his Volatility Contraction Pattern trading strategy.
If you are still struggling to find the best stocks to buy, then this blog will change your life in trading.
We have included a trading checklist at the end of the blog that you can refer to before entering any trade. Make sure you read until the end.
“Secrets For Profiting in Bull and Bear Markets”
Stan Weinstein, renowned trader and author of “Secrets For Profiting in Bull and Bear Markets,” outlined his successful methods for timing investments to produce consistently profitable results.
The book was first published in 1988 and has since become a classic in the field of technical analysis for swing traders.
Stan Weinstein is famous for using a 30-week moving average line to divide trends into four stages, also known as the bull and bear four stages.
He is a huge trend follower. His approach to investing is based on the use of technical indicators to identify stocks that are poised to make big moves.
Breaking Down The Market Cycle
Stan Weinstein divides stock price movements into four stages using a 30-week moving average line:
Stage 1: Accumulation Phase
Stage 2: Uptrend Phase
Stage 3: Distribution Phase
Stage 4: Downtrend Phase
1. Accumulation Phase
Initially, trading volume starts to shrink, and stock prices oscillate between support levels (bottoms of the trading range) and resistance levels (tops of the trading range) near the 30-week moving average line. In this stage, the 30-week moving average line starts to stabilize and remains in a sideways consolidation state. The bottom consolidation phase can last for months to years.
Therefore, even though you could enter at a relatively cheap price during the accumulation phase, you will never know how long you need to wait before it rallies. The time cost and opportunity cost of investing in other stocks would be much higher. Do not buy at this stage.
2. Uptrend Phase
After the bottom consolidation phase, stock prices break through the resistance area, and the 30-week moving average line starts to curve upwards and rise. With a significant increase in trading volume, the breakout point becomes the first buying point. The stock price stabilizes above the 30-week moving average line, and before the price rises, there is usually a pullback to the breakout point, forming the second buying opportunity.
In this stage, the 30-week moving average line rises and accelerates, and the stock price rises in an oscillating manner. Despite multiple pullbacks, the magnitude of each pullback becomes smaller, and the subsequent upward trend becomes larger, creating a situation where one wave is higher than the previous wave.
This is the phase that you want to catch to make the most amount of profit in a short period of time.
3. Distribution Phase
As stock prices rise, more and more investors, especially those who entered early, will want to sell for profits, while other latecomers and retail investors believe that a major bull market is approaching and prepare to buy in large quantities. At this point, the buying and selling forces are evenly matched, and the momentum of price increase starts to slow down. The slope of the 30-week moving average line begins to flatten, and the stock price gets closer to the 30-week moving average line.
This is the phase that you may consider exiting. Sometimes this phase could be very short, so traders may sometimes miss it, incurring a loss at the end.
4. Downtrend Phase
In the downtrend phase, stock prices fall below the support levels and the 30-week moving average line. After the stock price falls below the 30-week moving average line, it enters an oscillating downtrend, creating new lows with each decline, and each rebound after oversold conditions is lower than the previous high. The downward breakthrough is accompanied by increased trading volume, followed by a smaller volume rebound to the previous support area (to the downward breakthrough point). The support level becomes a resistance level, and the subsequent downtrend intensifies.
For traders who are still holding their stocks at this stage, they should consider cutting their losses, as they never know how long it will take to recover back to their breakeven level.
The Profitable Stock Selection Techniques
The most accurate way in confirming a market trend is by observing the market from market to sector to individual stocks. From a higher timeframe to lower timeframe, zooming in with the top-down approach.
Stan Weinstein believes that when buying stocks, one should first focus on the overall market performance and understand the direction of the market. If the overall market sentiment is positive, it means that most stocks in the market are performing well.
For example, if the NASDAQ index is positive in today’s trading day, you may expect AAPL (Apple) to be positive as well.
When choosing individual stocks, pay attention to whether the stock price is above the 30-week moving average line and whether the relative strength line is strong or better than the overall market.
Also, consider whether the stock price has broken through the consolidation zone or previous high, or even reached new highs, indicating that it has absorbed the supply zone or high trading volume zone.
To make things simple, we have summarized the rules into a 7-step checklist.
The Trading Checklist to Identify Stocks In Their Second Phase (SAVE THIS!):
- Stock Price >$12
- The price > 50-daily SMA
- The RS index > 85 or even >90 at optimal
- The price > 52-week low by at least 25%
- The price cannot < 25% below the 52-week high
- 200-daily SMA shows an uptrend for at least 1–5 months
- The 50-daily SMA > 150-daily (30-weekly) SMA > 200-daily (40-weekly) SMA
How TradeDots Could Save Your Time And Improve Your Performance
With TradeDots, traders are alerted early to discover more favorable entries at pullback after the breakout.
Additionally, even during the uptrend, TradeDots can identify further entry opportunities to add more positions and achieve a greater total return.
Without TradeDots, traders may execute trades randomly, potentially buying at the top of the wave and missing out on the full potential of the uptrend.
Although TradeDots cannot predict the end of the entire uptrend, traders can still minimize losses by avoiding late entries.
In fact, the loss incurred is comparatively less than if they were to buy at the top. Therefore, using TradeDots requires less effort and reduces the likelihood of being influenced by emotions. Traders can easily take action based on the signals labeled on charts.
Bottom Line
Mastering the secrets of profiting in bull and bear markets requires a deep understanding of the market cycle and effective stock selection techniques. By following Stan Weinstein’s proven methods, traders can enhance their chances of consistently achieving profitable results.
Remember to analyze the overall market, focus on strong sectors, and identify stocks that meet the technical analysis rules. With these strategies in place, you’ll be well-equipped to navigate the ever-changing stock market and maximize your trading success.
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Disclaimer: The information provided in this article is for educational purposes only and should not be considered as financial advice. Trading involves risk, and it is important to conduct thorough research and seek professional guidance before making any investment decisions. Prospective investors are encouraged to perform their own due diligence or consult a financial advisor before making investment decisions.
