As of 04/18/2024
Indus: 37,775 +22.07 +0.1%
Trans: 14,947 -39.62 -0.3%
Utils: 860 +6.95 +0.8%
Nasdaq: 15,602 -81.87 -0.5%
S&P 500: 5,011 -11.09 -0.2%
|
YTD
+0.2%
-6.0%
-2.4%
+3.9%
+5.1%
|
 39,800 or 37,150 by 05/01/202416,200 or 15,000 by 05/01/2024885 or 850 by 05/01/202416,700 or 15,800 by 05/01/20245,250 or 5,025 by 05/01/2024 |
As of 04/18/2024
Indus: 37,775 +22.07 +0.1%
Trans: 14,947 -39.62 -0.3%
Utils: 860 +6.95 +0.8%
Nasdaq: 15,602 -81.87 -0.5%
S&P 500: 5,011 -11.09 -0.2%
|
YTD
+0.2%
-6.0%
-2.4%
+3.9%
+5.1%
| |
|
39,800 or 37,150 by 05/01/202416,200 or 15,000 by 05/01/2024885 or 850 by 05/01/202416,700 or 15,800 by 05/01/20245,250 or 5,025 by 05/01/2024 | ||
This article discusses what I call Weinstein stops. It's a method that Stan Weinstein discusses in his book,
Stan Weinstein's Secrets For Profiting in Bull and Bear Markets (#ad)
Basically, you draw a 30-week moving average and place a stop below the moving average and below the minor low (the lower of the two) but only when price advances on its way to a new high.
My use of the stop suggests that it rarely gets triggered unless price has made a trend change. It the stop is hit, it can also mean a huge give back since the lag between the stock and the moving average is often a large one.
Stan has an answer for that. You raise the stop when price moves into stage 3. I discuss details of his method below.
The chart on the right shows ideal conditions for his method. The red line is a 30-week (150-day) simple moving average and the black line represents price.
Assume you own the stock depicted. Price rises to a new high at A in inset 1 and then drops to B. When price rises toward the high at C, place a stop at B. The B price is shown by the small horizontal green line to the left of B. It's below the moving average, below the minor low, and it represents the stop price location. The round green dot shows the minor low associated with the stop.
Trail the stop upward as price rises following these rules:
Inset 2 shows another variation. This time, price drops below the moving average at E. You want to place a stop below the minor low (at E) only as price climbs up to F.
Points F and C don't have to be peaks, like that shown in the figure. They are just prices that are near the old high of D and A, respectively. When price rises to the value of the old high, then and only then do you move the stop to the new price (always raising it, never lowering it). Keep the stop below the minor low and below the 30-week simple moving average.
He also recommends placing the stop below whole dollar amounts, like 10, 11, 12 and half dollars: 0.50. (I place stops below any number ending in 0). Thus, if the stop you're about to place is at 11.03, place it at 10.93 (below 11.00). Those that buy the stock will set a buy price of 11.00. That buying could stop a drop in the stock, so to avoid getting the stop hit, place it below support.
Those of you familiar with Stan's book will know what I mean by stages.
The figure to the right shows how price develops over time. The figure is from a research study on his method I conducted. Anyway, when price enters stage 3, you'll want to tighten the stop. That's what inset 3 shows in the first figure. When price goes horizontal in stage 3 and you see the moving average flatten out or trend lower, then tighten up the stop. Why? Because the distance from the stock and the moving average directly below the minor low can be a large percentage decline. That "give back" hurts profits while you wait for price to reach the stop. Instead, when it looks as if price is going to drop out of stage 3 and move into stage 4, then tighten up the stop.
I've found that the flattening of the moving average comes a bit too late to be of much use, but if you see the moving average trending lower and you haven't sold by then, then do so.
Here's an example. Full disclosure: I currently own the stock (as I update this on 5/3/2010) and bought it as shown on the figure. The figure is a weekly chart showing the moving average in black as a thin line.
I bought the stock as it broke out of congestion. Weinstein recommends placing the initial stop 8%, 10% or whatever below the purchase price. He's not a big fan of percentages because each chart should dictate where to place the stop, according to him. I show the initial stop placement as a red dot positioned slightly below a prior minor low (the week before I bought).
Price climbed to a new high at B, dropped to D and when it approached the high at C, (that is, as price approached the old high at B), move the stop to below the minor low and below the 30-week moving average -- point D in this case.
I show other stop locations as price climbed. Each short horizontal line designates the stop price. All are below the moving average and they are quite a bit away from the stock, at least on a percentage basis. That's by design. You want to give the stock room to maneuver. Notice that in the last dot on the right, the stop is placed below the minor low, since the low is below the moving average. The stock has not entered stage 3 yet, so I continue to hold. I've doubled my money so far.
-- Thomas Bulkowski
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