As of 02/28/2024
  Indus: 38,949 -23.39 -0.1%  
  Trans: 15,706 -90.67 -0.6%  
  Utils: 841 -0.99 -0.1%  
  Nasdaq: 15,948 -87.56 -0.5%  
  S&P 500: 5,070 -8.42 -0.2%  
YTD
 +3.3%  
-1.2%  
-4.6%  
 +6.2%  
 +6.3%  
  Targets    Overview: 02/13/2024  
  Down arrow37,700 or 39,000 by 03/15/2024
  Up arrow16,400 or 15,400 by 03/01/2024
  Up arrow870 or 800 by 03/01/2024
  Down arrow15,000 or 16,400 by 03/15/2024
  Down arrow4,850 or 5,100 by 03/15/2024
As of 02/28/2024
  Indus: 38,949 -23.39 -0.1%  
  Trans: 15,706 -90.67 -0.6%  
  Utils: 841 -0.99 -0.1%  
  Nasdaq: 15,948 -87.56 -0.5%  
  S&P 500: 5,070 -8.42 -0.2%  
YTD
 +3.3%  
-1.2%  
-4.6%  
 +6.2%  
 +6.3%  
  Targets    Overview: 02/13/2024  
  Down arrow37,700 or 39,000 by 03/15/2024
  Up arrow16,400 or 15,400 by 03/01/2024
  Up arrow870 or 800 by 03/01/2024
  Down arrow15,000 or 16,400 by 03/15/2024
  Down arrow4,850 or 5,100 by 03/15/2024

Trading Weinstein

 

Initial release: 10/25/2023.

In 1988, Stan Weinstein made a big splash with the introduction of his book, Secrets for Profiting in Bull and Bear Markets. The book describes the trading methodology he used and it provides numerous examples to support his method. Does his method still work in today's markets? I'll discuss his method as it applies to investors (hold time up to a year), not traders (hold time: 2-4 months), from the long side only (no short sales). Weinstein gives traders a slightly different approach in his setup. I did not cut off a trade at one year. I held until price stopped out the trade.

Buying Rules

His trading setup has many rules and I tested a number of them. Here's my interpretation of his setup.

Selling Rules

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Other Rules

Examples: 3D Systems

Picture of the DDD on the weekly scale.

I selected this image based on fitness as an example and not on whether it followed all of the buy rules. For example, I would not have placed this trade because it's below the $5 minimum.

The red (it looks black) wavy line is the 30-week simple moving average (SMA). To the left of B, the SMA turns up and price closes above the line. I put in a vertical blue line that shows volume is at least twice the height of the prior four weeks, although it's hard to see it on this chart. A buy stop placed a penny above the price bar J gets you into the stock at the right time.

A stop placed a penny below the minor low at A serves as protection.

Directly above D is a minor low. It's the next stop location. When price rises to E, place a stop below the SMA at D. That's about $2 a share.

When price climbs to the minor high at F, we can raise the stop to G. That's a penny below the minor low instead of below the SMA (the lower of the two).

At C, notice that the SMA turns down. When that happens, you want to tighten stops. The minor low at H is the next stop location. However, when the SMA turns down at C, price is already at I, below the stop, so sell it at the open the next week (weekly scale).

We bought into the stock at $1.89 and sold at $4.17 for a gain of 121%

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Another DDD Trade

Picture of the DDD on the weekly scale.

I selected this image based on fitness as an example and not on whether it followed all of the buy rules. For example, I would not have placed this trade because it's below the $5 minimum.

This picture of 3D systems, weekly scale, is another example of how Weinstein uses his setup. The base at A represents a good launching point after price breaks away from the congestion.

At B, we get a powerful move higher. Notice that volume (the green bar to the right of C) is high, too. The SMA has turned up, price is above the SMA, so it's buy time. I'd have a buy stop a penny above A to get us in on the breakout bar (B).

When price rises to bar K to reach the minor high at J, you'd put a stop not at G (the nearest minor low), but below the SMA at H.

Raise the stop when price reaches the flat line, shown as I. In this case, the minor low at F is below the SMA, so we use the minor low as the next stop location.

When the SMA goes flat to down, forget about the SMA as a stop guide and use the nearest minor low. That's D.

Price drops to E, triggering the stop at D, exiting the trade.

We entered the stock at $4.07 and sold at 6.26 and made 54% in less than a year.

When placing this trade, you'll want to check his other rules, such as market relative strength.

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ABT Trade

Picture of the ABT on the weekly scale.

I selected this image based on fitness as an example and not on whether it followed all of the buy rules.

This is a weekly chart of Abbott Labs.

The horizontal line below A represents a breakout above resistance. The SMA turns higher at D and price is above the SMA, too. A buy stop placed at 28.48 gets us into the trade on the tall white bar to the right of A.

However, volume at C isn't twice the rate of the prior four week average (I think, anyway) nor do we see a ramp of volume climbing to C (the 4 week average versus the prior 3 months, rule). Inferior volume means we abandon the trade.

The stop is placed below the SMA (not the minor low) at B.

In this case, the stock fails to make a new high so we are stopped out at E ($25.89) for a loss of 9%

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Another ABT Trade

Picture of the ABT on the weekly scale.

I selected this image based on fitness as an example and not on whether it followed all of the buy rules.

This is Abbott on the weekly scale, again. Look at the entire picture. This is the type of move Weinstein is trying to capture. When price climbs above the SMA, buy into the stock and hold it until the SMA moves flat to down (tighten stops until it takes you out).

In this chart, the sale for a perfect trade is off the chart on the left. Unfortunately, we don't get there. Here's why.

The SMA is moving up and price is above the SMA. However, we have to clear trendline resistance (not shown), represented by peak D. That happens at the vertical red line. Price just clears the 45.80 entry price and we buy into the stock.

Notice that volume is awful. It should be either double the four week average or the month should show higher volume compared to the prior 3 months. It doesn't and that means to exit the trade when it become profitable or you're stopped out.

At C, we raise the stop to the SMA at B, which is the value of the SMA below the nearest minor low.

At bar C, the trade moves into a profit. However, I found that using the low price of the price bar is best when exiting the trade. By that I mean the week's low has to be above the buy price or else you hold on. Once the week's low is above the buy price, the position moves into a profit and we sell at the next bar's open.

That happens as shown on the chart, at 47.29 for a 3% gain.

Waiting for a profit before selling allows the setup to have a high win/loss ratio but it pulls down the average gain.

I'll discuss statistics next.

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Statistics

Table 1 shows trading statistics for in-sample (1/1/2000 to 1/1/2011) and out-of-sample (1/1/2011 to 10/24/2023) tests. The tests follow the buy and sell guidelines already discussed.

Table 1: Trading Statistics
MetricIn SampleOut of sample
Average gain6%5%
Median gain6%6%
Win/loss ratio75%74%
Maximum loss-22%-20%
Trades448330

"In-sample" is where I applied filters to his setup (such as adding a check for high volume). Out-of-sample is what I used when I finished testing the individual setup components. Notice that I used a different time period but the same stocks.

The average gain is low because it's weighed down by trades that made a small profit. That happens when a buy stop triggers on low volume. You don't know it's low volume until the next week (weekly scale). If volume is below what it should be, then sell as soon as profitable or until the trade is stopped out.

The win/loss ratio is high because of this 'wait for profit' rule. Without the rule, the win/loss ratio drops (one test said it was 60%).

The flaw with this setup is the entry. You can't predict if it'll be a high volume week, and high volume is important to performance (unlike breakout volume from many chart patterns). Very high volume can propel a stock higher.

I tested each rule individually and found that they add value except for the market trend. I tested that over 1, 2, and 6 months and 1, 3, and 6 months. I found that 3 and 6 months worked best but it still didn't benefit performance.

-- Thomas Bulkowski

See Also

 

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My novels:  Remember Me book Bumper's Story book Head's Law book
My stock market books:  Chart Patterns: After the Buy Getting Started in Chart Patterns 2nd edition book Trading Basics book Fundamental Analysis and Position Trading book Swing and Day Trading book Encyclopedia of Chart Patterns 3rd Edition book

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