Different stock analysis methods have different ways of dividing the stages of stock operation. From the analysis of traditional main operation, it can be divided into five stages: accumulation, washing, trial trading, promotion and shipment. In the wave theory, a complete rising or falling cycle contains 8 waves (of which 5 are main waves and 3 are corrective waves). In entanglement theory, there are three types of buying and selling points. In the Wyckoff method, a cycle is divided into four stages: accumulation, rise, distribution and decline. In the book "The Stock Magician - The Secret of the World's Stock Market", the author Mark Minervini inherited Stan Weinstein's classification of the stages of stocks in "The Smiling Bull and the Bear", which is divided into four stages. Stages: first stage (ignored period: consolidation), second stage (breakout period: acceleration), third stage (top period: profit distribution), fourth stage (decline period: capitulation).
1. The four stages of stocks
The first stage is when the company's stock is ignored and the market is unwilling to pay for it. At this time, the company's financial performance may be unstable and the outside world has questions about its future. At this stage, it is difficult for the stock to get out of trouble and attract the attention of institutional investors, and it may last for months or even years. Mark Minervini believes that buying stocks in the first stage should be avoided.
The second stage belongs to the stage where the company has begun to attract institutional investors and the stock price has entered an upward trend. At this stage, stock price growth may be ignited by some surprising news, and the stock price may begin to rise rapidly, accompanied by a significant increase in trading price and trading volume. If the company can maintain high profitability and consistently report impressive net profits, the share price's growth rate should continue to accelerate, attracting a large number of investors.
The third stage involves the gradual transfer of stocks from the hands of strong buyers to the hands of weak buyers. At this stage, the strength of the stock price growth gradually weakens. Although net profit may still be growing, the growth rate gradually slows down, causing the upward trend of the stock price to begin to decline, and at the same time, the volatility of the stock gradually increases. Although net profit has always exceeded expectations, over time, stock prices will turn downward when net profit growth slows down or fails to meet expectations.
The fourth stage belongs to the stage when the stock turns from the peak of rising to falling. At this stage, the company's net profit growth slows down and negative news reports may appear, ultimately causing the previous upward momentum to peak and then turn downward. Net profit expectations are lowered, stocks face greater downward pressure, and the selling wave may last for a long time. The stock price and trading volume characteristics of the fourth stage are opposite to those of the second stage, with high trading volume and more down days than up days. Mark Milvini believes stocks in Stage 4 should be avoided.
2. The second stage trend template
Regarding how to find stocks in the second stage of an upward trend, Mark Milvini introduced a trend template in the book "Stock Magician", which contains 8 conditions:
1. The stock price is above the 150-day and 200-day moving averages;
2. The 150-day moving average is above the 200-day moving average;
3. The 200-day moving average has risen for at least 1 month (in most cases, 4-5 months is better);
4. The 50-day moving average is above the 150-day and 200-day moving average;
5. The current stock price is above the 50-day moving average;
6. The current stock price is at least 30% higher than the lowest stock price in the past year;
7. The current price is at least within 75% of the highest price in the last year (the closer to the highest price, the better);
8. The relative power ranking should not be lower than 70, preferably around 80 or 90.
3.The second stage trend template stock selection formula
The stock selection formula is not difficult to write, just write it out according to the above eight conditions. For the eighth condition, the book is based on the ranking published by the "Daily Investment News". We do not have this data, so we use the RPS relative strength indicator for ranking.
MA50:=MA(C,50);
MA150:=MA(C,150);
MA200:=MA(C,200);
X:=EXTDATA_USER(1,0);{50 days}
RPS50:=X/10;
Y:=USER_EXTDATA(2.0);
RPS120:=Y/10;
Z:=EXTDATA_USER(3,0);{250天}
RPS250:=Z/10;
A1:=C>MA150 AND C>MA200;
A2:=MA150>MA200;
A3:=EVERY(MA200>=REF(MA200,1),20);
A4:=MA50>MAX(MA150,MA200);
A5:=C>MA50;
A6:=C>LLV(L,250)*1.3;
A7:=C>HHV(H,250)*0.75 AND HHVBARS(H,250)<100;
A8:=RPS50>70 AND RPS120>70 AND RPS250>70;
XG:A1 AND A2 AND A3 AND A4 AND A5 AND A6 AND A7 AND A8;
Note: The RPS indicator needs to be set in advance and the data calculated using the Extended Data Manager and refreshed every day, otherwise there will be no results because EXTDATA_USER in the formula needs to reference the data in the Extended Data Manager. If you don’t know how to set up the RPS indicator, you can check out the 3rd Q&A (3. Pocket Pivot Point Stock selection formula, why is there no result?)
The stocks selected by the trend template in the second stage have only entered the watch list and need to wait for a stable period, such as VCP shape, etc. According to Mark Milvini, the right time is when the stock price has just come out of a stable period and the price starts to rise. Due to space limitations, this article can only give an overview. It is better to read the book for the specific content.
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