I get questions about volatility all the time. Should you avoid a stock because its ATR is high? Is a high ADR percentage a warning sign? Does a stock that moves 5%, 7%, or even 10% in a day automatically carry too much risk? Should you favor quieter stocks because they seem safer?

Those are fair questions, but I think the issue is often framed the wrong way. After studying the methods of William O’Neil, Mark Minervini, David Ryan, and Dan Zanger, the common thread is not that volatility should be ignored. It is that volatility has to be understood in context.

Volatility matters, but volatility by itself is not the same thing as risk. Some of the greatest growth stocks are capable of enormous price movement, and a stock that barely moves may feel safer while offering very little opportunity. A stock that moves aggressively may offer far more upside potential, but it also requires the trader to understand the setup, stop placement, liquidity, position size, and what normal movement looks like.

The better question is not simply, “Is this stock volatile?” The better question is, “Is this volatility creating opportunity, or is it making the trade too difficult to control?”

High Volatility Does Not Automatically Mean Too Risky

A high-volatility stock is not automatically a bad stock to trade. But if the stock’s normal movement prevents you from identifying a precise entry, a sensible stop, or an acceptable amount of risk, then it may be too risky for that particular trade. A good stock can still present a bad setup, and that’s really what we’re trying to avoid.

A stock can be capable of doubling and still be a poor candidate today. If the price action is too loose, the logical stop is too far away, or the normal daily swings are likely to knock you out before the trade has a chance to develop, the opportunity may not fit your risk parameters. You do not need to eliminate volatility, you just need to make sure the volatility is manageable.

That is an important difference because many traders confuse movement with danger. A stock that moves a lot is not automatically dangerous, and a stock that moves very little is not automatically safe. The real issue is whether the trade can be structured in a way that gives you a reasonable opportunity while keeping the downside under control.

Zanger Actually Wants Stocks That Can Move

Dan Zanger makes this especially clear in Momentum Masters. When discussing the stocks he is interested in, Zanger calls volatility a primary factor and says stocks capable of making large intraday moves are the ones that qualify for his capital. He also emphasizes liquid, high-beta names because his strategy is designed to capture substantial price movement.

That does not mean Zanger ignores risk. It means he separates two different questions: can this stock move, and does the current setup give me a reasonable way to participate in that move? Those are not the same thing.

A stock that barely moves may appear safer because the range is smaller, but if there is no momentum, leadership, or real upside potential, it may not be particularly attractive to a momentum trader. Zanger’s approach is a useful reminder that volatility itself is not necessarily the enemy. In many cases, movement is exactly what the trader is looking for.

Minervini Wants Volatility, Then He Wants It to Contract

This is one of the most important distinctions in Mark Minervini’s work. His Volatility Contraction Pattern, or VCP, is built around a stock transitioning from larger price swings into progressively smaller ones. In Trade Like a Stock Market Wizard, Minervini explains that he wants volatility to contract from left to right, with greater volatility earlier in the base and less volatility as the stock approaches the potential entry point.

A hypothetical progression might move from a 25% contraction to 15%, then 7%, and finally into a much tighter pivot area. The exact percentages are not the important part. What matters is the behavior of the stock as it progresses through the base.

As sellers become scarcer, the corrections should become smaller, and volume often begins to dry up as well. Minervini interprets this combination of tightening price action and declining volume as evidence that supply is being absorbed and the stock may be approaching a point where relatively little demand is required to push price higher.

So Minervini is not saying that you should never trade a volatile stock. He is saying that you should pay close attention to what volatility is doing as the stock approaches your entry.

Strength before the setup. Tightness inside the setup. Expansion after the breakout.

Minervini Also Warns About the “Bucking Broncos”

This is where the discussion gets even more important. In Think & Trade Like a Champion, Minervini has an entire section called “Avoid the Bucking Broncos.” He explains that when a stock is extremely volatile and constantly gyrating up and down, it becomes difficult to control risk with a relatively tight stop because normal price movement may repeatedly stop you out.

The obvious response might be to widen the stop, but Minervini warns that doing so can expose the trader to more downside than makes mathematical sense. At that point, the answer is not necessarily to force the trade or give the stock unlimited room. It may simply be better to find another candidate.

Minervini compares these stocks to bucking broncos. A volatile stock may eventually move from $20 to $40, but the real question is whether you will still be in the trade when it gets there. If the stock’s normal movement repeatedly throws you out of the position, the potential destination does not matter very much.

That is one of the best ways to think about volatility. A stock can have tremendous upside potential and still be a poor fit if you cannot stay in the trade without taking unacceptable risk.

David Ryan Wants Quiet, Stable Action Near the Buy Point

David Ryan, who worked directly with William O’Neil, emphasizes something very similar. After studying millions of charts throughout his career, Ryan says one characteristic that gives him confidence before a stock begins a major move is a tight trading range in the final week or two before the breakout.

When asked specifically what he wants to see before buying, Ryan says he prefers very stable price action. He does not want a lot of volatility immediately before the purchase. Instead, he wants a period of quiet, tight trading after the larger base has already formed.

Again, that does not mean Ryan only trades slow-moving stocks. It means he wants the stock to settle down before he commits capital. A stock may have been volatile earlier in the base, but near the buy point he wants the price action to become controlled enough that he can clearly define the trade.

Ryan also gives a practical warning that I think many traders overlook. If a stock is so volatile that it requires excessive attention, it may simply not be the right stock for that trader. He notes that some volatile stocks require so much “eyeball time” that they may be better left to someone else.

There is no rule saying every trader has to trade every great stock.

O’Neil Called the Opposite “Wide and Loose”

William O’Neil approached the same idea through the quality of the base. In How to Make Money in Stocks, he repeatedly warns against price structures that are wide, loose, and erratic. These types of bases often produce failed breakouts because the stock has not developed the kind of controlled structure associated with higher-quality setups.

In one example, a stock attempted to break out while its structure was still wide and loose, and the breakout failed. Only after the stock eventually tightened into a more constructive base did it break out successfully and nearly triple.

In another example, O’Neil describes an extremely wide and erratic pattern that produced several false breakout attempts before the stock finally developed a tight base.

The terminology is different, but the message is very similar to Minervini’s VCP. O’Neil did not want uncontrolled price movement around the buy point. Minervini does not want it, and Ryan does not want it either.

The shared lesson is straightforward. A powerful stock can have a large historical range without acting wildly at the point where you decide to buy it. The setup matters more than the raw volatility statistic.

High Volatility Can Be Opportunity, or It Can Be a Warning

Context changes everything. A powerful growth stock emerging from a proper base in a healthy Stage 2 uptrend can be exactly what a momentum trader wants. Once the breakout occurs, expansion is desirable because the whole point is to capture a stock that can move.

But increasing volatility can mean something completely different after a stock has already made a huge advance. Minervini describes healthy Stage 2 action as a stair-step progression of higher highs and higher lows with constructive price and volume behavior. As the stock transitions toward a Stage 3 topping phase, volatility can increase dramatically and the action can become much more erratic.

So when volatility increases, you have to ask why. Is the stock breaking out of a tight base and expanding higher, or has a mature leader suddenly started swinging wildly after an extended advance? Those are completely different situations.

This is why volatility should never be evaluated in isolation. The timing, trend, stage, price action, and volume all matter.

What About ATR and ADR?

This is where a lot of traders get hung up. ATR, or Average True Range, and ADR, or Average Daily Range, can be useful measurements because they help quantify how much a stock normally moves. I have no problem looking at either one.

What I would not do is turn them into automatic buy or sell rules. A high ATR or ADR reading is information, but it is not automatically a reason to reject the stock. It tells you something about the stock’s normal movement, not whether the stock is actually a good trade.

Minervini directly discusses ATR in Think & Trade Like a Champion. He explains that a common approach is to give a high-volatility stock a wider stop and a low-volatility stock a tighter stop, but he says he is not a fan of mechanically widening the stop just because volatility is higher.

He goes even further when discussing volatility and expectancy. During difficult market environments, volatility often increases while batting averages fall and losses become harder to control. His response is not simply to give stocks more room.

A high ATR does not automatically mean that you should use a wider stop. It may mean you should wait for the setup to tighten, find an entry closer to the technical danger point, reduce your position size, demand better confirmation, or simply pass on the stock.

The books reviewed for this article do not present ADR percentage as a required growth-stock filter. O’Neil, Minervini, Ryan, and Zanger place far more emphasis on price, volume, trend, relative strength, base structure, institutional demand, liquidity, and risk management.

ATR and ADR can help describe a stock. They cannot tell you whether the stock is under accumulation, whether the base is sound, or whether the trade offers attractive reward relative to risk.

Volatility and Volume Are Not the Same Thing

I get a lot of questions about volume too, and it is important not to mix these concepts together. Volatility tells you something about the size of price movement. Volume tells you something about how much stock is changing hands.

It is also worth separating liquidity from volatility. A lot of traders assume that lower-volume stocks automatically have higher ADR or ATR, but that is not necessarily the case. At the time of writing, AXTI was averaging more than 11 million shares a day, with both its ADR and ATR percentage around 11%. FORM was averaging roughly 1.37 million shares a day with an ADR around 5.5% and an ATR percentage around 7%. Apple, meanwhile, was trading dramatically more volume than either of them, yet its ADR was closer to 2%. Higher trading volume can improve liquidity, but it does not automatically mean lower volatility.

When price and volume are analyzed together, they can give us clues about supply and demand. O’Neil placed enormous emphasis on this relationship. In How to Make Money in Stocks, he advocates buying stocks as they initially break out of sound bases with volume significantly above normal, using 50% above normal as a guideline.

Ryan expresses the same institutional logic. He generally wants stocks advancing on stronger volume and pulling back on lighter volume because institutional buying cannot easily be hidden. Around major breakout points, he especially likes to see substantial volume expansion.

Zanger is even stricter. He wants volume rushing into the stock and generally expects the breakout to confirm with significant volume expansion.

Minervini gives us a little more flexibility. He says he would not automatically reject a stock simply because the breakout initially occurs on lighter volume, since sometimes the volume arrives later. He may act on the price first and then look for volume confirmation afterward.

I try not to turn any of these observations into absolute rules.

So Does Higher Volatility Mean Higher Risk?

Sometimes, yes. A stock capable of moving 10% in a normal session can obviously move against you much faster than a stock that normally moves 5%. But that still does not mean volatility and risk are identical.

Risk is created by the combination of your entry, stop distance, position size, liquidity, market conditions, and trade management. Two stocks can have completely different volatility profiles and still represent the same amount of portfolio risk if the trades are sized correctly.

Consider two $100 stocks. Stock A has a logical stop at $96, which is a 4% stop. Stock B has a logical stop at $92, which is an 8% stop.

If you put $25,000 into each trade, your risk is not the same. Stock A risks approximately $1,000, while Stock B risks approximately $2,000. The position size is identical, but the dollar risk is twice as large in Stock B.

The answer is not necessarily to ban Stock B. You could reduce the position size so that your capital at risk remains the same. But there is an important qualification.

If Stock B is so volatile that the only practical stop is 12%, 15%, or more away, or the stock is so loose that you cannot identify a sensible technical risk point at all, then reducing position size may not solve the underlying problem. At that point, the better decision may simply be to wait for a tighter setup or move on.

That is exactly where Minervini’s bucking bronco concept becomes important.

Risk Is Defined Before the Trade

This is one of the biggest lessons running through all of these traders. You do not control what the stock does after you buy it. You do control what you buy, where you buy, how much you buy, where you are wrong, and how much you are willing to lose.

Minervini’s entire approach to risk starts with thinking through the trade before committing capital. He repeatedly emphasizes controlling risk through position size, entries, exits, and advance planning.

O’Neil approaches the problem from the defensive side. His system is built around cutting losses quickly, with 7% to 8% representing the maximum loss from the purchase price in the framework described in How to Make Money in Stocks.

Neither trader says to simply buy stocks that barely move. The emphasis is on controlling the damage when you are wrong.

That is a very different philosophy.

Liquidity Matters Too

A volatile stock and an illiquid stock are not necessarily the same thing. A fast-moving stock with deep liquidity can sometimes be easier to trade than a slower-moving stock with very little volume, a wide bid-ask spread, and limited depth when you need to get out.

There is actually a pretty wide range of opinion on how much liquidity is enough. O’Neil wrote that the majority of your stocks should average several hundred thousand shares a day or more. Minervini has traded stocks doing only 100,000 to 300,000 shares a day and occasionally as little as 50,000, but he makes an important qualification: the position has to be small enough that he can get out safely. David Ryan generally wants at least 100,000 shares a day, while Dan Zanger is much more liquidity-conscious and prefers stocks trading at least 2 million shares a day.

That range is a good reminder that there is no single volume number that makes a stock liquid or illiquid for every trader. Position size matters. A stock may have plenty of liquidity for someone buying a few hundred shares while being completely unsuitable for someone trying to move tens of thousands of shares. Minervini specifically adjusts his position size in thinner names, while Zanger points out that even stocks trading 2 million to 4 million shares a day can experience sudden liquidity dry-ups when everyone heads for the exit at once.

For my own trading, I do not have a strict yes-or-no liquidity rule. I look at average daily volume, position size, the bid-ask spread, market capitalization, and how easily I believe I can enter and exit without materially affecting the trade. As a general preference, though, I find that many of the stocks I am most comfortable trading average at least 1 million shares a day and have a market capitalization of roughly $1 billion or more.

That tends to give me a good middle ground. There is usually enough liquidity to enter and exit efficiently, but I am still able to find the faster-moving growth stocks I am looking for. I am not saying a stock below those numbers is automatically untradeable, and I would not reject a great setup simply because it misses one arbitrary threshold.

When I evaluate a volatile stock, I am asking two separate questions: How much does this stock normally move, and can I get out efficiently if I am wrong? ADR and ATR help answer the first question. Liquidity helps answer the second.

What O’Neil, Minervini, Ryan, and Zanger Shared

These four traders did not trade exactly the same way. Zanger was clearly more attracted to explosive, high-beta movement. Ryan placed a premium on stable behavior and tightness near the buy point.

Minervini built an entire entry methodology around volatility contraction and precise risk control. O’Neil focused heavily on proper bases, exact pivots, price and volume, and avoiding wide-and-loose structures.

But their methods overlap in some very important ways. They wanted stocks capable of meaningful price appreciation, leadership, constructive price and volume action, and sound bases rather than uncontrolled, erratic structures. They also wanted tighter price action around high-quality entry points and risk defined before the trade.

When a stock’s volatility made the risk difficult to control, the answer was not necessarily to force the trade. Sometimes the right decision was simply to wait or find another stock.

What I Would Look for Instead

If I am evaluating a growth stock, I absolutely care about volatility. I just care about it in context.

First, is the stock capable of moving enough to make the trade worthwhile? Second, what is happening to volatility inside the setup? Is the price action becoming tighter and more controlled, or is it becoming wider and more erratic?

Third, what happens as the stock breaks out? Does price demonstrate strength, and does volume confirm demand? Fourth, where am I wrong, and can I identify a logical stop that fits my risk parameters?

Finally, does the stock’s normal behavior fit the way I trade? A highly volatile stock may be perfectly tradable for someone sitting in front of the market all day, while the same stock may be completely inappropriate for someone who cannot monitor it closely.

You do not have to trade every great stock.

The Bottom Line

Should volatility be considered when selecting stocks? Absolutely, but should a high ATR, high ADR percentage, or large daily price range automatically disqualify a stock? No.

The bigger lesson from O’Neil, Minervini, Ryan, and Zanger is to study the character of the volatility. A stock can be an explosive mover and still present an excellent opportunity, but what you generally do not want immediately before entry is uncontrolled, wide, loose, erratic price action.

You want strength that becomes increasingly organized. You want supply drying up, price tightening around a logical pivot, and then expansion once demand takes control.

High volatility is not automatically high risk, but if a stock’s normal movement prevents you from identifying a precise entry, a sensible stop, or an acceptable amount of risk, then it may be too risky for that particular trade.

So do not ask only:

“Is this stock too volatile?”

Ask instead:

“Is this volatility giving me opportunity, or is it telling me the trade is becoming harder to control?”

That is a much better question.

Go Deeper With Momentum Trading Strategy

If you want to go deeper on these concepts and learn how traders like O’Neil, Minervini, Ryan, and Zanger approached stock selection, setups, risk, and trade management, consider becoming a paid subscriber and taking the Momentum Trading Strategy Course. The course is built to give you a deeper understanding of these ideas and how to apply them in a repeatable process.

Paid members also get access to MTS Velocity Trading Software, which includes our Relative Strength stock screener along with a wide range of tools designed to help with trade planning, risk management, position sizing, journaling, performance analytics, and more.

If you missed the full software tutorial, you can watch it here.

So this video fills in the gap.

I walk through an actual MU trade and show how the Position Sizing Indicator can help determine position size based on your entry, technical stop, account size, and desired risk. You can also control portfolio exposure, use blended stops, track partial sales and adds, and manage trailing stops as the trade develops.

Then we get into MTS VDU, which was built to help identify the exact type of action growth traders are constantly hunting for:

Volume drying up. Price bars contracting. Tight handles. Shelves. VCPs.

I also walk through NVDA as a classic example of the indicator spotting the contraction and volume dry-up before the eventual breakout.

Both tools make it easier to find quality setups, define your risk before entering, size the position correctly, and then manage the trade as it moves in your favor.

Watch the video above, play around with both indicators inside MTS Velocity, and let me know what you think.

At some point, we have to stop arguing with the market and simply look at what it is actually doing. The S&P 500 is near all-time highs. The Nasdaq is above all of its key moving averages and moving back toward record highs. The Dow is near all-time highs, and the Russell 2000 has pushed to all-time highs. On the surface alone, that is a difficult backdrop to characterize as bearish. Our rule number one is simple: NEVER argue with price.

More importantly, the strength is not confined to a handful of mega-cap stocks. The equal-weighted indexes are confirming the broader advance. The S&P 500 Equal Weight and Nasdaq-100 Equal Weight are at all-time highs, the Dow Equal Weight is near its highs, and the Russell 1000 Equal Weight is also at record levels. That broader participation tells us the advance is extending well beyond the largest companies in the major averages.

The picture remains constructive as we widen the lens further. The Russell 1000 Growth Index is approaching its highs, while Russell 2000 Growth is already at record levels. Russell 1000 Value and Russell 2000 Value are also at or near all-time highs. The total U.S. stock market, represented by VTI, is at all-time highs. The S&P MidCap 400 is at all-time highs. The Russell 1000 is at all-time highs. Across large caps, small caps, midcaps, growth, value, cap-weighted indexes, and equal-weighted indexes, the message from price is remarkably consistent.

If you are bearish right now, I think you need to ask yourself a simple question: Why?

What objective evidence is supporting that view? Is the conclusion coming from the market itself, or are fear, headlines, economic opinions, political views, or expectations about what the market should be doing overriding what price is actually telling us? That does not mean the market cannot pull back tomorrow, that every breakout will work, or that risk management should be relaxed. Markets deal in probabilities, not certainties, but based on the evidence currently in front of us, it is difficult to build a strong bearish case from the major indexes.

And we have not yet gone beneath the surface. In the remainder of this report, we are going to examine up/down volume, advance-decline data, net 52-week highs and lows, the percentage of stocks above key moving averages, our macro composite model, relative strength across sectors and industry groups, and ultimately the individual stocks themselves. That deeper evidence will tell us whether the internal market is confirming what the major indexes are already suggesting.

This is also where an important distinction needs to be made. In CANSLIM, the M is market direction. O’Neil emphasized staying in gear with the general market by interpreting the price and volume action of the major indexes together with the behavior of leading stocks. The market environment is currently supportive and, in our framework, giving us a green light, but a green light is not the same thing as an automatic buy signal.

O’Neil was equally clear that confirmation in the general market is permission to begin buying high-quality stocks emerging from sound bases, not a reason to buy indiscriminately. We still need the right companies, strong earnings and sales, relative strength, institutional demand, proper setups, disciplined entries, appropriate position sizing, and strict risk management.

That is where the rest of our process comes in. MTS Velocity is designed to help us identify the companies and technical conditions that meet those standards, while the MTS Course, our educational articles, and the books I recommend are there to teach the process behind finding high-quality setups that offer favorable risk-to-reward opportunities. A supportive market is only one piece of the equation. Knowing what to buy, when to buy it, how much to buy, and when to get out remains just as important.

The market is giving us permission to be offensive. The individual stocks still have to earn our capital.

Now let’s see whether the evidence underneath the indexes confirms what price is already telling us.

Read more

And MTS Velocity is only one part of the paid membership.

Paid members also get the weekly Big Picture Market Pulse, all paid educational posts, access to the paid subscriber chat, and the complete Momentum Trading Strategy Course.

So if you’re currently a free subscriber, this video will show you one of the biggest tools included when you upgrade.

And if you’re already a paid member, this is the tutorial I recommend watching to make sure you understand the full functionality and power of MTS Velocity and aren’t missing tools that could improve your process.

I walk through MTS Velocity from start to finish, from logging in and analyzing the overall market to finding leading stocks, reviewing charts, building watchlists, sizing positions, planning trades, managing them, journaling the results, and analyzing your performance.

MTS Velocity is built around the same top-down process I use and teach throughout Momentum Trading Strategy:

Market → Relative Strength → Sectors and Industry Groups → Stocks → Charts → Watchlist → Position Sizing → Trade Plan → Trade Management → Journal → Analytics

The goal is to bring as much of the trading process as possible into one place instead of constantly bouncing between different screeners, charting platforms, spreadsheets, calculators, journals, and other tools.

Finding the Market’s Strongest Stocks

A major part of the tutorial focuses on how I use Relative Strength to narrow thousands of stocks down to the names showing the characteristics I actually want to trade.

We start with the Market Overview Dashboard, which gives you a quick snapshot of many of the market indicators I monitor when evaluating overall market health.

From there, we move into the Relative Strength Dashboard, where you can quickly identify where strength is concentrated across:

• Major indexes

• Sectors

• Subsectors

• Industry groups

• Commodities

• Global markets

• Currencies

• Crypto

• Treasury bonds

• Leading large-cap stocks

I also show you how to create custom Relative Strength timeframes and Anchor Dates, which allows you to measure performance from an important market low, breakout, new market uptrend, or any other date you want to analyze.

Then we get into what I consider the heart of MTS Velocity, the Relative Strength Scanner.

The MTS Relative Strength Scanner

The scanner allows you to search for stocks using multiple Relative Strength approaches, including:

• Primary Timeframe RS

• Multi-Timeframe RS

• Accelerating RS

• Decelerating RS

• Weighted RS

• Volatility-Adjusted Relative Strength

• Custom RS lookbacks

• Custom Anchor Dates

From there, you can combine Relative Strength with a large library of advanced filters covering things like:

• Earnings

• Sales

• Volume

• Liquidity

• Market cap

• Volatility

• Moving averages

• Distance from highs

• Fund ownership

• Sector strength

• Industry group strength

• Price performance

• Trend criteria

• MTS proprietary ratings

I also walk through proprietary ratings including the MTS Score, EPS Rating, Quality Score, Sales Rating, Profit Rating, and Accumulation/Distribution Rating.

The idea is to give you the ability to take a universe of thousands of stocks and progressively narrow it down to the names that best fit what you are looking for.

Built-In Screens and Custom Scans

MTS Velocity also includes a large number of built-in screens that you can use as a starting point.

I walk through screens for things like:

• CANSLIM-style leaders

• Big Earnings and Big Sales

• Super Performers

• Technical Trend Template stocks

• Market Movers

• Pre-Market Movers

• New 52-Week Highs

• Episodic Pivots

• High-Tight Flags

• Upcoming Earnings

• And more

You can use the preset screens as they are, modify them, or build and save your own custom scans based on your trading style.

Charts, Research, and Watchlists

Finding a stock in a scanner is only the beginning.

I show you how to quickly move through your scan results and review charts while also looking at the information that matters to your decision-making process.

That includes things like:

• Price action

• Relative Strength

• Earnings

• Sales

• Fund ownership

• Institutional sponsorship

• Analyst information

• Historical Relative Strength

• Additional company and market data

You’ll also see the expanded charting system, custom moving averages, Relative Strength lines and ratings, comparison tools, volume tools, multiple timeframes, and other chart functionality.

Once you find a stock worth following, you can move it directly into your watchlist and organize it however you want.

For example:

Watch → Near Pivot → Actionable → Open

Or you can create your own categories, subcategories, and tags based on your personal trading process.

Position Sizing and Risk Management

Finding a great stock is only one part of trading.

You still have to manage risk.

MTS Velocity includes position sizing and risk tools that help you calculate your position based on:

• Account size

• Entry price

• Stop price

• Percentage of account risk

• Maximum portfolio exposure

I also walk through additional risk and position sizing tools designed to help you understand how position size can dramatically change the outcome of the exact same trading system.

Two traders can take the same trades and end up with very different results depending on how they manage risk and size their positions.

That is why position sizing is such an important part of the platform.

Trade Planning and Management

Once a stock becomes actionable, you can take it directly into the Trade Planner.

You can plan things like:

• Entry

• Initial stop

• Position size

• Setup

• Entry trigger

• Event risk

• Selling strategy

• Contingency plans

• What you will do if the trade works

• What you will do if the trade does not work

The goal is to think through the trade before you are in it.

Once the trade triggers, you can move it into Trade Management and continue tracking your position, risk, partial sells, adds, and overall exposure.

When the trade is finished, you can move it directly into your Trading Journal.

Trading Journal and Performance Analytics

The journal is where you can review the trade after the fact.

What went right?

What went wrong?

Did you follow your plan?

What did you expect to happen?

What actually happened?

What did you learn?

What can you improve on the next trade?

Over time, this allows you to build your own trading model book based on your actual trades instead of relying on memory.

The journal also feeds into your performance analytics.

You can track things like:

• Win rate

• Average gain

• Average loss

• Win/loss ratio

• Profit factor

• Monthly P&L

• Annual performance

• Drawdowns

• Holding periods

• Number of trades

• Setup performance

• Additional trading breakdowns

The aim is to eventually know exactly what is and is not working in your own trading.

Instead of saying, “I think I’m good at this setup,” you can look at your own data and know.

That closes the loop.

Find the strength. Identify the leaders. Build the watchlist. Plan the trade. Manage the risk. Execute. Review the result. Improve the process.

That is what I want MTS Velocity to help you do.

MTS Velocity Is Included With Every Paid Membership

MTS Velocity is included with every paid Momentum Trading Strategy membership.

If you’re already a paid subscriber, log in and follow along with the tutorial. Even if you’ve been using MTS Velocity for a while, there are probably tools and functionality inside the platform that you haven’t fully explored yet.

If you’re currently a free subscriber, this video gives you a complete look inside the software you’ll unlock when you upgrade.

And remember, MTS Velocity is only one part of the paid membership.

Paid members also get:

• Full access to MTS Velocity

• The complete Momentum Trading Strategy Course

• The weekly Big Picture Market Pulse

• All paid educational posts

• Access to the paid subscriber chat

• All other paid member content

So when you upgrade, you are not just getting access to a stock screener or a piece of software. You are getting access to the entire Momentum Trading Strategy membership and the tools, education, market analysis, and community that go with it.

Upgrade to paid and get full access to MTS Velocity and the complete Momentum Trading Strategy membership.

Upgrade!

The major indexes are holding above their key moving averages, net 52-week highs remain positive, and breadth has expanded significantly. Roughly 74% of the total market is above the 10-day and 20-day moving averages, while NASDAQ breadth has also pushed well above 50%.

But I don’t want to look at price alone.

I’m also watching what is happening underneath the surface.

The number of stocks making 4% upside moves continues to outpace those falling 4%. Up/down volume is running nearly 2-to-1 on the day, 1.7 over the week, and 1.3 over the month. The advance-decline ratio is also above 1, something we haven’t consistently seen during much of the past several months.

In other words, participation is improving.

And growth is back near the front of the pack.

Since the July 29 low, the NASDAQ 100, Russell 1000 Growth, NASDAQ Composite, and Russell 2000 Growth have been among the strongest indexes I track. Technology has moved back into the No. 1 spot among sectors, with strength showing up in computer hardware, semiconductors, software, cybersecurity, metals and mining, oil and gas, aerospace and defense, and other areas.

That’s what makes this market especially interesting right now.

Earlier this year, there were periods when you could almost ignore everything outside a few dominant growth groups. Now we’re seeing strong stocks emerge from a much wider range of industries.

That doesn’t mean I suddenly want to diversify just for the sake of diversification. I still want to concentrate capital in the strongest stocks inside the strongest groups.

But I want to know where the strength is developing.

So for this video, I decided to do something a little different.

Instead of going through another list filled with the same growth stocks everyone is already watching, I pulled 10 stocks from 10 different industry groups that currently have my attention.

They are:

STX — Computer Hardware
ATRO — Aerospace & Defense
PBF — Oil & Gas
FROG — Software
MTRN — Industrials
AUGO — Metals & Mining
FORM — Semiconductors
NVT — Electrical Equipment & Parts
COHR — Hardware Equipment & Parts
NESR — Oil & Gas Services

And throughout the video, I also touch on several additional names including AXTI, APH, NBIS, and SHOP.

I’m not simply looking for stocks that have gone up.

I’m looking for the combination I come back to again and again:

Big earnings. Big sales. High relative strength. Increasing institutional ownership. Strong industry groups and, most importantly, price and volume action that gives me a logical place to enter and a logical place to admit I’m wrong.

Some of these stocks are already pushing toward new highs.

Others are tightening up and could be developing potential entry points.

And some aren’t ready but can be added to the watchlist.

I would much rather identify the stock early, put it on my watchlist, and wait for price to give me the setup than force an entry simply because the fundamentals look good.

The bigger takeaway from this video isn’t necessarily any single stock.

It’s what these stocks collectively tell us about the market.

We’re seeing stronger breadth.

We’re seeing more upside participation.

We’re seeing growth regain leadership.

And we’re seeing opportunities appear across a wider range of industry groups.

If this uptrend continues, I want to keep following that strength and let the market tell me where capital is flowing.

Stay with the strongest groups. Find the strongest stocks inside them. Then wait for price to give you a reason to act.

Let’s get into the charts.

I want to walk everyone through exactly how I managed AEHR because this trade ties together several concepts I talk about constantly: position sizing, R-multiples, progressive exposure, adding to winners, selling into strength, and protecting your original risk.

There’s also some important context. I entered AEHR in my swing trading account, not my longer-term position trading account. I’m able to trade full time and can generally be at the screens from premarket through the close.

If you work full time or can’t actively monitor the market, you may still be able to trade the same stock, but the way you structure and manage the trade may need to be different. Your trading style has to fit your actual life.

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The market followed through this week.

We are now two weeks removed from the July 29 lows, and the evidence has changed dramatically. The S&P 500 broke to new all-time highs, the Dow gapped to record highs, the Russell 2000 pushed into its prior highs, and every major index I track is now above its 10-day, 20-day, 50-day, and 200-day moving averages.

More importantly, Tuesday delivered the type of confirmation we had been waiting for. The S&P 500 and Nasdaq-100 advanced strongly on higher volume, providing follow-through-day confirmation and giving us the signal to begin increasing exposure as the market transitions into a confirmed uptrend. O’Neil’s approach after a follow-through day was not to rush immediately to maximum exposure, but to begin buying high-quality stocks with strong earnings and sales as they emerge from sound bases, then let the market and those individual positions confirm the rally.

Several of our market indicators are confirming the improvement. Breadth and participation have expanded sharply, up/down volume has strengthened, and the advance-decline ratio produced one of its strongest weekly readings in months. The weight of the evidence now points to a much more supportive market environment.

But I want to make an important distinction. A strong index tape does not automatically mean we have a perfect growth-stock environment.

Many of the stocks that led the previous advance remain technically damaged, and some of the strongest percentage moves off the July 29 lows are coming from stocks that previously fell 30%, 50%, or even 75%. O’Neil emphasized that market direction should be judged not only by the major indexes, but also by the action of the individual market leaders.

That leaves us with the most important question now:

Is this simply a powerful broad-market recovery, with beaten-down growth stocks bouncing from oversold levels before eventually rolling over again, or are the next true growth-stock leaders beginning to emerge?

That is what I am watching next.

Paid subscribers continue below.

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The S&P 500, Dow, Russell 2000, and several equal-weight indexes are at or approaching all-time highs. Technology has reclaimed its 50-day moving average, breadth has improved sharply, and buying volume is beginning to overpower declining volume.

We may also be seeing a follow-through day, but the final confirmation will depend on how the indexes close and whether volume finishes above the prior session.

In today’s video, I walk through:

• The improving market environment and breadth data
• Why up-volume versus down-volume has strengthened significantly
• The return of technology and growth leadership
• The sectors and industry groups leading from the July 29 low
• How I use anchored relative strength to identify emerging leadership
• The exact RS Scanner process I use to find stocks with strong earnings, sales, institutional sponsorship, and price action
• Several individual stocks currently appearing across my strongest screens
• How to create, save, and customize your own scanner filters and layouts

The biggest takeaway is that strength is no longer isolated to one narrow part of the market. Value, growth, large caps, small caps, and equal-weight indexes are all participating.

Watch the video below for the complete market update and a walkthrough of how I am using the RS Scanner to find the strongest stocks in the market right now.

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The late-week rebound changed the market’s tone, but not yet its underlying condition.

The Nasdaq-100 came under heavy pressure Monday through Wednesday, declining on higher volume for three consecutive sessions before reversing higher Thursday and gapping up Friday. That rebound lifted the index above its 10-day moving average and above the prior week’s close, but it still finished below Monday’s opening price and remains trapped beneath its 20-day and 50-day moving averages.

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A member recently asked why the MTS RS Scanner shows a universe of roughly 3,200 stocks when platforms like TradingView list substantially more.

It’s a fair question.

The answer has nothing to do with missing market data.

In fact, the MTS platform has access to essentially the same U.S. stock universe as the major screening platforms, and in some cases, even more securities.

The difference is what happens before the Relative Strength calculations begin.

Most people assume a Relative Strength screener should rank every listed stock.

I don’t.

I believe the quality of a Relative Strength ranking depends just as much on the universe you’re comparing against as the formula you’re using.

If you compare the wrong stocks, even the best Relative Strength calculation in the world becomes less useful.

That is why the MTS RS Scanner does not rank every available security.

Instead, it intentionally defines the universe first by removing securities that are generally less suitable for this style of momentum investing before any Relative Strength ratings are calculated.

The current universe is built around the following minimum requirements:

• Listed on the NASDAQ or NYSE

• Share price of at least $5

• Average daily volume of at least 100,000 shares over the previous 30 trading days

• Market capitalization of at least $100 million

• OTC securities are excluded

Because stocks regularly move above and below these thresholds, the total number of securities in the scanner naturally fluctuates over time.

Why Not Include Everything?

TradingView currently includes more than 7,000 OTC securities alone. More stocks don't automatically create better Relative Strength rankings. The quality of the universe matters just as much as the calculation itself.

At first glance, including more stocks sounds like a good idea.

More stocks should mean more opportunities.

Right?

Not necessarily.

If the universe includes thousands of illiquid, low-priced, and very small companies, those securities become part of the Relative Strength ranking process.

That can dilute the rankings with stocks that may show impressive percentage gains but are not realistically tradable for most growth and momentum investors.

A stock can double simply because a relatively small amount of buying moves the price.

That does not necessarily mean it is attracting institutional demand or becoming the type of sustained market leader that traders are actually searching for.

Liquidity, tradability, and institutional participation all matter.

The purpose of a Relative Strength screener isn’t to find every stock that moved.

It’s to identify the strongest stocks within a meaningful and tradable universe.

The Base Filters Are Still Fairly Lenient

The market's biggest winners rarely sit near the minimum thresholds. In most cases, they trade with substantially higher liquidity and market capitalizations. That's why the MTS base universe is designed to be broad enough to capture future leaders, while filtering out thousands of securities that add little value to the Relative Strength rankings.

These requirements may sound restrictive, but they are actually quite broad.

William O’Neil recommended avoiding very low-priced stocks and frequently used a minimum price of $10 when screening for potential market leaders.

Traders such as Mark Minervini, David Ryan, Dan Zanger, Kristjan Kullamägi, and many of the traders featured in the Market Wizards books have also emphasized liquidity and the importance of focusing on a clearly defined universe of tradable securities.

In reality, most of the stocks these traders pursue trade far more than 100,000 shares per day.

That means the scanner’s minimum requirements are not designed to create an exclusive universe consisting only of the largest companies.

They simply remove the weakest and least tradable portion of the market.

Relative Strength Is Only as Useful as the Universe Behind It

A Relative Strength rating is never calculated in isolation.

It tells you how one stock is performing compared with every other stock in the selected universe.

That makes the quality of the universe incredibly important.

If the comparison group includes dormant companies, penny stocks, thinly traded microcaps, and securities with very limited liquidity, the resulting rankings become less useful for identifying institutional-quality leadership.

A broader universe is not automatically a better universe.

The objective is not to produce the largest possible list.

The objective is to create the most meaningful comparison.

This Does Not Mean Every Excluded Stock Is Bad

None of this means lower-priced or lower-liquidity stocks cannot produce exceptional returns.

Many successful traders specialize in microcaps and penny stocks.

Those securities simply require a different approach, different risk management, and a different screening methodology.

Every trading strategy requires boundaries.

The MTS RS Scanner is primarily designed for growth investors and momentum traders who trade in the tradition of William O’Neil, David Ryan, Mark Minervini, Dan Zanger, Kristjan Kullamägi, and many more. For that style of trading, liquidity and institutional participation matter.

The Bottom Line

The smaller universe is not caused by missing data or hidden settings.

It is intentional.

The MTS platform has access to the same market data as the major stock screening platforms.

The difference is that the universe is intentionally filtered before the Relative Strength calculations begin.

Stocks that fail to meet minimum standards for price, liquidity, and market capitalization are removed first.

Only then are the Relative Strength ratings calculated.

That keeps the rankings focused on the types of stocks momentum traders are most likely to actually trade.

Because the value of a Relative Strength rating doesn’t come from how many stocks you rank.

It comes from the quality of the universe you’re ranking against.

A Future Update

I also understand that some members would like the ability to search beyond the scanner’s default universe by including OTC securities, foreign stocks, lower-priced companies, and other securities that currently fall outside the base requirements.

I’m considering adding this capability in a future update.

Rather than changing the default universe and potentially diluting the current Relative Strength rankings, the most likely approach would be optional universe selectors.

That would allow traders to expand or narrow the universe depending on their own strategy while preserving the existing default universe for those who trade liquid growth and momentum stocks.

For those who believe the current base requirements are too lenient, remember that the scanner already includes advanced filters that allow you to narrow the results further.

You can increase the minimum volume or market-capitalization requirements, require a higher Average Daily Range percentage or ATR percentage, and combine those with many other fundamental and technical criteria.

This allows each trader to create a stricter list of candidates without forcing every user into the same standards.

There is one important distinction, however.

The advanced filters determine which stocks appear in your scan results, but the Relative Strength ratings are still calculated against the scanner’s full default base universe.

For example, increasing your minimum average volume to one million shares may remove lower-volume stocks from your results, but it does not recalculate Relative Strength using only those remaining stocks.

That is intentional.

It keeps the Relative Strength ratings consistent across the platform while still allowing traders to customize which stocks they personally want to review.

In other words, the default universe would remain the foundation for the RS calculations, while advanced filters and any future universe selectors would give users more control over the securities displayed in their individual scans.

The Right Balance

Hopefully, this clears up some of the questions about why the MTS RS Scanner uses a defined base universe and shows how much the underlying universe can affect Relative Strength rankings.

There is no perfect universe for every trader or strategy. If the universe is too broad, the rankings can become diluted by illiquid, low-priced, and largely untradable securities. If it is too narrow, you risk excluding legitimate opportunities before they ever appear.

The best solution is somewhere in the middle: broad enough to capture emerging leadership, but selective enough to keep the rankings relevant, liquid, and practical for the style of trading the scanner was built to support.

The market sent a more serious warning this week.

Both the Nasdaq-100 and Nasdaq Composite undercut their previous correction lows, closing at their lowest levels since the decline began following their early-June peaks. Both indexes are now forming lower highs and lower lows, a clear deterioration in price structure and an increasingly unfavorable development for growth-stock and momentum traders.

That weakness is being confirmed beneath the surface. Distribution remains elevated, with eight distribution days on the Nasdaq-100, six on the Nasdaq Composite and four on the S&P 500. Up/down volume has continued to deteriorate, the percentage of stocks holding above key moving averages has declined, and for the first time in months, Nasdaq 52-week lows outnumbered 52-week highs over the weekly period.

No single indicator should determine our market outlook, but these warnings are beginning to reinforce one another. We place the greatest emphasis on the daily price-and-volume action of the major indexes, and by the behavior of the stocks that led the advance. When distribution builds, the indexes make lower lows, and former leaders fail to recover, the evidence must be respected.

The action of the former leaders remains one of the market’s most concerning signals. When we screen companies with strong earnings and sales and review the stocks that produced many of the largest gains over the past year, most remain technically damaged and trapped in downtrends. We are still seeing very few high-quality growth stocks forming sound bases, breaking out successfully, and following through with sustained advances, which O’Neil considered a major warning near difficult market periods.

The S&P 500 continues to hold up better than the Nasdaq, but its chart is not healthy. It remains below its 50-day moving average and is caught between higher lows and lower highs. That is better than the Nasdaq’s pattern of lower highs and lower lows, but it is not strong enough to outweigh the deterioration occurring across growth stocks.

The relative-strength dashboard confirms that leadership remains concentrated outside traditional growth areas. The S&P MidCap 400 and S&P 500 Equal Weight were the two strongest major indexes over the past week, which is a positive sign for broader market participation. However, the Nasdaq Composite, Nasdaq-100, and Russell 2000 Growth remained near the bottom of the rankings, reinforcing the continued weakness across growth stocks.

Energy continued to trend higher and was the leading sector over both the past week and month. Utilities and industrials followed over the weekly period, while materials and aerospace and defense also strengthened. Energy should not be dismissed simply because it is not traditional growth leadership, but its strength does not provide the confirmation we would normally want to see before becoming more aggressive with a growth-stock strategy.

Healthcare and financials require more nuance. Both remain relatively strong over the one-month and three-month periods, but they lost momentum compared with the areas leading this past week. Pharmaceuticals, medical equipment, biotechnology, banks, and insurance have not all broken down, but the rotation among them shows how quickly relative leadership continues to shift.

The market has been changing leadership quickly, which is exactly why we described it as a déjà vu market a few weeks ago. Areas strengthen briefly, begin to look promising, and then lose momentum before durable leadership can fully develop.

Even the areas showing the best relative strength are not advancing with much force. The S&P MidCap 400 and S&P 500 Equal Weight led the major indexes over the past week, but both have been pulling back for several weeks and are now sitting just above their 50-day moving averages. The Dow has declined for three consecutive weeks, while the Russell 2000 has pulled back for four straight weeks. Both appear to have found support near their 50-day moving averages, but they are holding up better rather than providing strong, expanding leadership.

The sector picture remains mixed. Energy has produced one of the strongest recent advances, rising more than 13% from its July 1 low, but it remains below the prior high established in May and the larger peak reached in March. Financials, healthcare, and industrials continue to show some of the clearest patterns of higher highs and higher lows. Real estate has reached a new 52-week high and is trading at levels not seen since 2022. Biotechnology has pulled back without suffering major technical damage, and its chart remains constructive enough that it could re-emerge as a leading area if price action confirms it.

One important distinction is that not all relative strength represents the type of leadership we want to follow. Some of the areas holding up best, particularly utilities and portions of healthcare, are defensive. It is normal for defensive groups to outperform when growth stocks and former market leaders are correcting, as money rotates toward businesses with steadier demand, more predictable earnings, and lower volatility.

That type of relative strength may be confirming a more cautious market environment rather than signaling the beginning of a new offensive leadership cycle. It is also not a reason for us to abandon our growth-stock and momentum strategy and chase defensive areas simply because they are declining less or temporarily outperforming. Our edge remains in finding companies with strong earnings and sales growth emerging from sound bases within leading growth-oriented industry groups.

Leadership remains fragmented, inconsistent, and in some cases defensive rather than offensive. A few areas are trending higher or holding up well, but many of the relative leaders are themselves pulling back toward support rather than advancing into new highs. The market remains highly rotational, and the evidence beneath the surface continues to deteriorate gradually.

O’Neil taught investors to read what the market is actually doing rather than predict what it should do next. Right now, the Nasdaq-100 and Nasdaq Composite are making new correction lows, distribution remains elevated, breadth is deteriorating week after week, and most of the former growth leaders are failing to recover. Until a new rally attempt produces a credible follow-through day and genuine growth leadership begins emerging, the evidence continues to support a defensive posture.

In the short and intermediate term, conditions are bearish for growth stocks, and the opportunity set remains extremely limited. However, when we zoom out, there is still an important positive. The longer-term cyclical bull market that began in late 2022 remains intact, with the Nasdaq indexes still above rising 200-day moving averages.

That does not mean the bull market is over. It means the market is experiencing a longer and deeper correction than we wanted. The longer-term trend remains intact, but the short- and intermediate-term evidence continues to place the burden of proof on the bulls before we become aggressive again.

All right, now let’s dive into the report.

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In early June, we wrote that the Nasdaq had just fired a warning shot.

The June 5 selloff was not normal price action. The Nasdaq-100 gapped lower, sliced through the 10-day and 20-day moving averages, and did it on heavy volume. After closing down approximately 4% that day, we said the move represented a genuine change in character rather than ordinary profit-taking following a powerful advance.

That warning was confirmed, and the damage has continued to worsen.

Last week, we discussed the sense of déjà vu developing in the market and compared the current environment with the long, difficult consolidation that stretched from late October through the March 30 low. The major indexes held together reasonably well through most of that period, before the March breakdown tied to the Iran conflict pushed them below longer-term support. Growth leadership had weakened, relative strength was rotating, and the market had become far less forgiving.

After this week, I would argue that the current environment feels even worse at the individual-stock level for growth-stock and momentum traders than the consolidation period from late October through February, excluding the March breakdown below the 200-day moving average.

During the late-2025 and early-2026 consolidation, the market was difficult, selective, and filled with rotation. One industry group might work for a week or two before leadership shifted somewhere else. Failed breakouts and repeated small losses created the feeling of death by a thousand cuts.

However, even during that period, there were still legitimate growth stocks inside growth-oriented industry groups that were aligned with the broader AI theme and produced sustained advances. Micron (MU), for example, had a strong run from December through late January. Lumentum (LITE) produced two powerful moves, one from late October into early December and another from late January through March.

When I look through the relative-strength stock screen today, the opportunity set appears far bleaker.

The consolidation we expected after the powerful April and May advance could have been healthy, and it could still ultimately develop that way. Normal and natural market behavior would have been for the Nasdaq-100 to pull back toward the 50-day moving average, find support or briefly undercut it, reclaim the level, and then begin tightening as volume declined and new bases formed.

That type of action would have given the indexes and individual stocks time to reset before beginning their next potential leg toward new all-time highs. The market will do what the market will do, and we cannot completely rule out that outcome. After all, the Nasdaq undercut its 200-day moving average in March before launching one of its strongest advances in years.

But we must make decisions based on the current price action and evidence, not on what we hope might happen next. Right now, the evidence is telling us that the market is not ready.

This week was damaging.

The Nasdaq suffered three substantial down days on increasing volume, fell more than 3% below its 50-day moving average, and came dangerously close to taking out the prior low established on June 9. The index itself has now suffered meaningful technical damage, with much of the selling concentrated in chips and AI hardware, the same areas that powered the prior advance.

Still, the index damage is not the most concerning part of the current environment.

The real warning is what has happened to the individual growth-stock leaders and the industry groups that carried this bull market. Semiconductors, computer hardware, memory, networking, data-center infrastructure, electrical equipment, and other AI-related groups have not merely led since the March 30 low. Many of them have been among the market’s dominant leadership areas for more than a year, including during the strong summer advance of 2025.

Now those former leaders are breaking down together.

That deserves our attention because William O’Neil considered the action of leading stocks one of the most important indicators of a potential change in market direction. When the indexes weaken and the stocks that led the advance begin acting abnormally, fail to recover, and break important support levels, the message must be respected.

This does not automatically mean the entire bull market is over. Value stocks, financials, energy, healthcare, biotech, small-cap value, and several equal weight and broader-market areas continue to show relative strength. But for traders who specialize in leading growth stocks, the Stage 2 environment that rewarded aggressive exposure in April and May has clearly ended for now.

The burden of proof has shifted back to the bulls.

We now need to see the Nasdaq stabilize, reclaim its 50-day moving average, and begin tightening. More importantly, we need to see former leaders repair their charts, new growth leadership emerge, growth-oriented industry groups regain strength, and sound bases begin producing successful breakouts again.

Until that happens, the market is telling growth-stock and momentum traders to protect capital, reduce exposure, remain highly selective, and stop trying to force trades from an opportunity set that is no longer cooperating.

In this week’s report, we will examine which new sectors and industry groups are showing strength, which areas may be emerging as potential leadership, and what truly separates a leading industry group from an area experiencing nothing more than a short-term rotation.

All right, now let’s dive into the report.

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Conviction Is Not the Same as Attachment

One of the stories Stanley Druckenmiller has shared over the years has always stuck with me. He has talked about spending months developing a bullish investment thesis that he expected would play out over the next 12 to 18 months. He would study the macroeconomic backdrop, understand the business, analyze the technicals, and build enough conviction to put meaningful capital to work.

And then, just days or a few weeks later, he could be completely out of the position.

To most investors, that sounds irrational. Why spend months researching an idea only to abandon it a week later?

The answer is that Druckenmiller was never committed to being right. He was committed to making money. The moment price action, market conditions, or new information invalidated his thesis, he didn’t feel obligated to defend his original opinion. He simply accepted that the evidence had changed and moved on.

That philosophy is captured perfectly in one simple phrase:

Strong opinions, weakly held.

Although the quote did not originate in the investing world, it perfectly describes how many of history’s greatest traders operate. George Soros, Paul Tudor Jones, William O’Neil, Peter Brandt, and Druckenmiller himself all share one characteristic that separates them from the average investor. They are capable of developing enormous conviction in an idea while remaining completely willing to abandon it the moment the market proves them wrong.

That distinction sounds subtle, but I believe it is one of the most important psychological lessons a trader can ever learn.

One of the biggest misconceptions among newer investors is that conviction means refusing to change your mind. They admire investors who “never sell” or who continue buying through every decline because they mistake stubbornness for discipline. In reality, those are two very different things. Discipline is following your process. Stubbornness is defending your ego.

The Day Your Thesis Becomes Your Identity

Over the years, I’ve realized that one of the biggest contributors to my own success has been my willingness to separate conviction from attachment. Before I risk capital, I want to have a strong opinion. I want to understand the company, identify the catalyst, analyze the chart, and know exactly why I believe the stock could become the next market leader. I don’t want to enter positions based on hope or emotion.

But I also recognize that every investment thesis is simply a hypothesis. It’s my best interpretation of the available evidence, not an objective truth.

The market has no obligation to validate my opinion.

If the price action stops confirming my thesis, I can exit.

If the broader market changes character, I can reduce exposure.

If earnings and sales completely change, I can admit I was wrong.

None of those decisions represent failure. They represent adaptability.

Ironically, I think this is one of the hardest concepts to teach beginner traders because changing your mind feels emotionally uncomfortable. Most people interpret it as admitting defeat. Instead of objectively evaluating new information, they begin searching for reasons to preserve the original thesis.

They move their stop-loss because “it’s just temporary.”

They search social media for bullish opinions that confirm what they already believe.

They ignore deteriorating price action because they convince themselves everyone else simply doesn’t understand the opportunity yet.

Eventually, something subtle but incredibly dangerous happens.

What began as an investment thesis becomes part of their identity.

You can see this pattern everywhere in financial markets. There are gold bugs who believe every economic event confirms the coming collapse of the dollar. There are Tesla investors who defend every criticism of the company. There are Bitcoin maximalists who dismiss every legitimate concern because questioning Bitcoin feels like questioning the community itself. The same thing happens in countless crypto projects, technology stocks, and even individual CEOs who develop almost cult-like followings.

The specific asset doesn’t matter.

The psychology is always the same.

People stop evaluating the evidence and start defending the belief.

The Market Doesn’t Care About Your Opinion

Sometimes those investors are even right about the long-term story. Tesla changed the automotive industry. Bitcoin has been one of the best-performing assets of the past two decades. Great companies and transformative innovations often deserve enormous admiration.

But none of that guarantees a profitable investment.

A wonderful business can become wildly overvalued. A revolutionary technology can still experience an 80% drawdown. A company can dominate its industry while producing years of disappointing shareholder returns because expectations became impossible to meet.

Being right about the story is not the same as being right about the trade.

The greatest traders understand this distinction better than anyone. Their confidence doesn’t come from believing they’re always right. It comes from trusting their process enough to know they’ll survive being wrong.

That’s why they define risk before entering a position.

That’s why they cut losses instead of explaining them away.

That’s why they continuously update their opinions as new information becomes available.

Tom Hougaard titled his book Best Loser Wins for a reason. The greatest traders don’t avoid being wrong. They become exceptionally good at recognizing it quickly, accepting it without emotion, and moving on to the next opportunity.

Most importantly, they never allow their identity to become tied to a stock, a market, or a prediction.

Professionals are loyal to their process.

Amateurs become loyal to their opinions.

The difference may seem insignificant, but over the course of a career it becomes enormous. One mindset encourages curiosity, flexibility, and continuous learning. The other encourages confirmation bias, emotional decision-making, and increasingly larger mistakes.

The market rewards the first and punishes the second.

The Market Earns Your Conviction

Earlier this year, I experienced both sides of this lesson.

When I first bought LITE, I had conviction in the name and had done my research, but I did not enter the trade with overwhelming conviction. What mattered was that it aligned with my process. The company had strong earnings and sales growth, high relative strength, a leading industry group, and a low-risk, high-reward setup. The evidence was there, the risk-to-reward was attractive, and that was enough to take the trade.

After my entry, the stock continued to act well. As the evidence improved, so did my conviction. LITE earned more of my confidence because the price action kept confirming the original thesis.

PLTR taught me the opposite lesson.

Fundamentally, I still loved the company. Sales growth was accelerating, earnings were exceptional, and its AI platform was seeing real adoption across both commercial customers and government contracts.

But the stock was telling me a different story.

The price action had changed. Leadership was fading, the trend had weakened, and the market was no longer rewarding those outstanding fundamentals.

William O’Neil warned investors about exactly this mistake. One of his most important lessons is that great growth stocks can top while earnings are still exceptional. He pointed to numerous historical leaders that rolled over despite reporting triple-digit earnings growth because the market had already begun looking ahead.

I had a choice.

I could defend my opinion, or I could respect the evidence.

I chose the evidence.

That did not mean I suddenly believed Palantir had become a bad company. It simply meant that, at that moment, it was no longer behaving like a great stock.

That experience reinforced something I have come to believe over the years:

The market earns your conviction.

Conviction should not remain fixed simply because you spent months researching an idea. It should increase when the evidence improves and decrease when the evidence deteriorates.

That is the difference between conviction and attachment.

The Lesson Every Trader Eventually Learns

If there’s one lesson I’d encourage every investor to internalize, it’s this: develop your opinions with confidence, but hold them with humility. Do the research. Build the thesis. Commit capital when the probabilities are in your favor, but never confuse conviction with certainty, and never mistake loyalty to a stock for discipline.

The market doesn’t care how much time you spent researching an investment. It doesn’t care how passionately you believe in a company or how many intelligent people agree with your thesis. It only cares whether your thesis continues to match reality.

The best traders in history understood that. They had the confidence to take big swings when the evidence supported them, but they also had the humility to walk away the moment the evidence changed.

That’s what strong opinions, weakly held really means.

It isn’t a lack of conviction.

It’s the willingness to admit that the market knows something you don’t.

The greatest traders don’t make their money by always being right.

They make their money by refusing to stay wrong.

As growth investors and momentum traders, we are taught to buy strength, and one of the best ways to do that is by buying breakouts into new high ground. The pivot point is the price level a stock must clear to move above resistance, and ideally we want to see volume expand as the breakout occurs. Sometimes that volume arrives immediately, while in other cases it appears over the following sessions and confirms the move. Either way, the breakout matters because it demonstrates demand and removes much of the overhead supply that had previously held the stock back.

These breakouts can emerge from traditional base patterns such as a flat base, cup with handle, or volatility contraction pattern, commonly known as a VCP. They can also develop later in a stock’s advance, after the original breakout has already occurred and price begins consolidating sideways or pulling back in a controlled manner. When the stock eventually pushes through the top of that range and returns to new highs, the entry can be treated much like a breakout from a longer base. The underlying principle is the same: price is clearing resistance and showing that buyers are willing to pay up.

A trader can build an entire career by buying breakouts to new highs. However, no strategy works equally well in every market environment, and there will be periods when other entry techniques are rewarded more consistently. Breakouts may still be working, but you may want another way to add to an existing position. You may also have missed the original breakout and want a way to get involved without chasing the stock at another new high.

In some cases, a stock’s history shows that it tends to chop and grind around its highs, making breakout entries more difficult to manage. The stop may be wider than you prefer, the setup may not provide a clean risk level, or you may want to build a larger position without increasing the total dollars at risk. There are many reasons to use pullback buys, and they can offer a lower cost basis, clearer risk management, and greater flexibility in how you build a position.

This is where pullback buys and upside reversals become useful. Some traders build their entire careers around buying pullbacks, just as others focus almost exclusively on breakouts. I prefer to use both and think of pullback buying as another tool in the toolbox. It does not change the growth characteristics, fundamental strength, or technical qualities I screen for, but it gives me more flexibility in how I enter a position and allows me to adapt to the tactics the market is currently rewarding.

Neither approach is inherently better than the other. Both have advantages and disadvantages, and the market ultimately determines which one is working best at any given time. The market has a vote, the industry group has a vote, and the individual stock has a vote. The real questions are: What is being rewarded right now, and how can I enter a potential market leader with a low-risk, high-reward setup?

Buying pullbacks and upside reversals does not mean buying a stock simply because it has declined. It is not averaging down into a broken position, and it is not blindly buying every dip. A pullback is only worth considering when the larger trend remains healthy, the support level is identifiable, and the trader knows exactly what price action would prove the setup wrong.

In this article, we will take a deeper look at pullback buys and upside reversals, including how they differ, where they tend to develop, what makes one setup stronger than another, and how to define risk when entering the trade.

Breakout entry versus pullback entry.

The Conditions That Must Be Present

Pullback buying works best when both the general market and the individual stock are in clear uptrends. A strong market is more forgiving. Leading stocks are more likely to respect their moving averages, recover from shakeouts, and resume their advances. When the market is rolling over, support levels that would normally attract buyers can fail without warning.

The stock itself should also be acting like a leader. A practical definition of an uptrend is a pattern of higher highs and higher lows supported by a rising 50-day moving average. If the stock is making lower highs, breaking prior lows, and trading beneath a declining 50-day line, the setup is not a tradable pullback within this framework.

We are not buying a stock simply because it has pulled back. It should still meet the same criteria we use when buying breakouts. The stock should be in a clear Stage 2 uptrend and display the characteristics commonly found in the market’s biggest winners, including strong earnings and sales growth, high ROE and/or strong margins, leadership within a strong industry group, and alignment with the broader bull market theme.

Technically, the major moving averages should be rising and properly aligned. Ideally, the 20-day moving average is above the 50-day, and the 50-day is above the 200-day. We also want to see strong volume as the stock advances, followed by lighter or declining volume as it pulls back or consolidates. The setup may involve buying weakness, but only within the context of unmistakable strength.

Healthy pullback and trend.

Why Strong Stocks Pull Back

Great stocks do not move in straight lines. They advance, pause, correct, and then attempt to move higher again. Those periods of weakness are not automatically evidence that the larger move is over.

Pullbacks occur for several reasons. Early buyers take profits, short-term momentum traders exit, the broader market pauses, or institutions allow the stock to retreat toward a price where they are willing to accumulate more shares. The result is a temporary imbalance in which supply overwhelms demand.

Institutions cannot build meaningful positions in a single afternoon. Their buying often takes place over weeks or months, which means they may use normal corrections to add shares. From the outside, the stock appears weak. In reality, ownership may simply be transferring from impatient holders to investors with a longer time horizon.

The best pullbacks often feel uncomfortable because they create enough fear to force weaker holders out of the stock. An orderly decline on lighter volume is easier to buy, but a sharp shakeout can be equally effective if it reaches meaningful support and recovers quickly.

The depth of the decline must be considered in relation to the stock’s normal volatility. A 9 percent intraday move may be extreme for a slow stock but close to one average true range for a volatile growth leader. Percentages should therefore be interpreted in context rather than treated as universal rules.

The Main Support Levels

Once a stock is in an established uptrend, several levels can provide support. The most useful are the 10-day moving average, the 20-day moving average, the 50-day moving average, and the top of a prior base or consolidation.

The 10-day moving average is usually close to the stock’s price. It is often more useful as a holding guide than as a major pullback entry. The strongest leaders can ride the 10-day line for weeks, repeatedly testing it without breaking the larger trend.

The 20-day moving average tends to create more meaningful entries because it sits farther below the price. Depending on the stock’s volatility and the strength of the prior advance, price may already be meaningfully below its high by the time it reaches the line, which can be enough to shake out short-term traders and create a favorable risk-reward setup.

The 50-day moving average is the classic institutional support level. Major winners often test it several times during a long advance, and the first pullback to the 50-day is frequently one of the most important opportunities in the move. In a growth leader, the stock may be 15 to 25 percent below its high by then, which creates enough fear to produce a serious shakeout.

Prior resistance can also become support. When a stock breaks above the top of a base or consolidation, that old ceiling may become a floor during the next correction. The strongest setups often occur when the top of a prior base and a rising moving average are located in the same area.

The Four Ways to Buy a Pullback

There are four practical ways to enter a pullback. A trader can begin buying while the stock is approaching support, buy directly at the support level, buy an upside reversal, or wait for a reclaim and additional confirmation. Each approach offers a different balance between entry price, risk, and proof that buyers are stepping in.

1. Buying While Price Approaches Support

Buying while the stock is still falling toward support is the most aggressive method. The trader believes a specific level is likely to hold and begins building a small position before the stock has shown clear evidence of a bounce. The main advantage is the potential for an excellent cost basis and the ability to participate if the stock moves quickly off support before providing a cleaner entry.

The disadvantage is that the stock has not yet confirmed anything. It may continue falling, fail at the anticipated support level, or force the trader to sit through additional volatility before the setup improves. A properly placed stop should prevent a small loss from becoming a large one, but the trade still carries a higher probability of failure because buyers have not yet demonstrated control. You may have a support area to use when defining risk, but the setup is usually stronger when that support is paired with a confirmed price low that provides a more precise line in the sand. This is my least-favorite entry method because I generally prefer to see some evidence that price is moving off support, reclaiming the intraday low, or pushing above the prior day’s close or high.

2. Buying Directly at Support

Buying directly at support is slightly more conservative. In this case, the stock has reached the level where demand should appear, such as the 20-day moving average, the 50-day moving average, the top of a prior base, or another clearly defined support area. The trader may place an order near that level and use a stop if price decisively violates the support zone. Buyers have still not proven that they will defend the level, but the trade is being entered at the location where the risk can be more clearly measured.

3. Buying the Upside Reversal

The third approach is to buy an upside reversal. Instead of anticipating support, the trader waits for evidence that sellers have lost control and buyers have stepped in. Price may touch or briefly undercut support, establish a low, and then rally sharply enough to close well off that low and near the upper portion of the daily range. This usually produces a slightly higher entry price, but it provides a much clearer signal that demand has appeared.

This is one of my favorite approaches because price is confirming the setup while also providing a clear line in the sand. The low of the reversal day, together with the support area, can be used to define risk. More active traders can also drop down to an intraday chart and watch the shift in real time. Time and Sales can help show buyers overwhelming sellers, Level II can provide additional context, and tick charts can make the change in order flow easier to visualize.

4. Buying the Reclaim or Follow-Through

The fourth approach is to wait for additional confirmation. The trader may buy when the stock reclaims the moving average, moves above the reversal-day high, clears the prior day’s high, or produces strong follow-through during the next session. This method offers more proof that the pullback has ended, but it usually requires paying a higher price.

I use this approach frequently, especially when the initial upside reversal does not close above the prior day’s high or fully reclaim the support level. In those situations, the next day’s strength can provide the confirmation that was missing from the original reversal.

Experienced traders may combine all four methods, while others may specialize in only one or two. As with nearly everything in trading, each approach has advantages and disadvantages. The best method is the one that fits your personality, allows you to define risk clearly, and matches the type of price action the market is currently rewarding.

Four pullback entries.

What an Upside Reversal Actually Is

The term “upside reversal” is often used too loosely. Some traders call any green candle after a decline a reversal. Others require the stock to close above the previous day’s high. The best way to understand reversal days is to view them as a spectrum of quality.

At a minimum, an upside reversal occurs when a stock trades materially lower during the session and then closes well off the low. Sellers control the stock early, but buyers step in and change the character of the day. The long lower wick shows that lower prices were rejected.

A stronger reversal closes in the upper third of the daily range. A better version also closes above the opening price, which turns the candle green. The highest-quality reversal reclaims support, closes above the prior day’s high, occurs on expanding volume, and receives immediate follow-through during the next session.

Not every valid reversal will satisfy all of those conditions. A stock can gap below its 50-day line, fall sharply, and then rally to close near the high while still finishing red for the day. That is not a perfect reversal, but it still shows meaningful supporting action.

The location is often more important than the color of the candle. An imperfect reversal at the first test of a rising 50-day moving average may be more significant than a beautiful green candle that occurs in the middle of nowhere. A reversal signal should always be evaluated in relation to the support level being tested.

Volume adds another layer of confirmation. A reversal on heavy volume suggests that large buyers absorbed meaningful supply. A reversal on average or light volume can still work, but it provides less evidence of institutional demand and may require stronger follow-through.

When to Buy the Reversal Day

A trader should not buy simply because a stock gaps beneath support. The purpose of waiting for a reversal is to let the stock establish a low and then prove that buyers are stepping in.

The cleanest reversal entry usually occurs late in the session. By that point, the stock has already made the low, rallied substantially from it, and shown that the recovery is holding into the close. A trader who buys too early is still guessing that support will hold.

An experienced trader may begin buying sooner if the stock sharply undercuts support, attracts volume, and immediately begins reclaiming the level. That approach can improve the entry price, but it also increases the risk that the apparent bounce will fail before the close.

The low of the reversal day becomes the primary line in the sand. The entire thesis is based on the idea that buyers rejected that price. If the stock later breaks the low and fails to recover quickly, the supporting action has been invalidated.

A reversal can occasionally undercut its low during the next session and reverse again. Some volatile leaders produce a second shakeout before moving higher. A trader may allow limited flexibility if the stock quickly recovers, but a continued decline should not be rationalized as normal action.

The Reclaim and Confirmation Entry

A moving-average reclaim is not the same as the initial reversal. A stock can reverse sharply from the low and still close below the 50-day moving average. Buyers have rejected the lowest prices, but they have not yet repaired the technical damage.

The reclaim occurs when the stock moves back above the moving average. It may happen late on the reversal day or during the following session. The reclaim provides confirmation that the break below support may have been a shakeout rather than the beginning of a larger decline.

A trader who buys the reversal is purchasing the change in intraday control. A trader who buys the reclaim is purchasing proof that the stock has recovered the lost level. The reversal entry usually offers a lower price. The reclaim entry usually offers a higher probability.

A practical approach is to divide the trade. The trader can buy a partial position near the close of the reversal day and reserve additional capital for the reclaim. This reduces the chance of missing the move without requiring a full commitment before the stock confirms.

The stop on a confirmation entry can be managed in several ways. A tighter stop can be placed below the low of the confirmation day or just beneath the reclaimed moving average. A wider structural stop can be placed below the original reversal-day low.

The wider stop gives the stock more room for a normal retest, but it requires a smaller position. The tighter stop allows for greater size, but it also increases the chance of being shaken out by ordinary volatility. Stop distance and position size must always be considered together.

Another option is to use a staggered stop. For example, you could sell half the position if price breaks the confirmation-day low, then sell the remaining half if it breaks the original reversal-day low. This allows you to reduce risk early while still giving part of the position enough room for a normal retest.

Upside reversal at the 10-day moving average.

Tight price action confirms support before a move to new highs.

Position Sizing and Building the Position

Position size should be determined by the distance between the entry and the logical stop. If the stop is close to the entry, the position can be larger while maintaining the same total account risk. If the stop is wider, the position must be smaller. The objective is to keep the dollars at risk consistent, regardless of the stock’s volatility or how attractive the setup appears.

It is important to distinguish between emotional averaging down and a planned scale-in. Emotional averaging occurs when a trader adds to a losing position simply because the stock has declined. The additional purchases were not part of the original plan, the trader may continue moving the stop lower, and the position often grows as the trade becomes less successful. The decision is being driven by hope, frustration, or a desire to improve the average cost rather than by objective price confirmation.

A planned scale-in is different because the purchase levels, maximum position size, stop, and total account risk are established before the trade begins. Some pullback traders may intentionally start with a small position as price approaches support and add at predetermined levels. This is more disciplined than emotional averaging down because the trader is following a defined plan rather than reacting impulsively.

However, even a planned scale-in still involves adding shares while price is moving against the initial position. That is where it conflicts with how I apply Paul Tudor Jones’s warning: “Don’t ever average losers.” From my perspective, planning the additional purchases in advance does not change the fact that the trader is increasing exposure before the stock has proven that support will hold.

That is not the approach I prefer. I want to see evidence that buyers are stepping in before committing capital. That confirmation may come through an upside reversal, a reclaim of the moving average, a move above the prior day’s high, or strong follow-through during the next session.

A position can then be built as the stock proves itself. For example, an initial purchase may be made on the upside reversal, followed by an additional purchase when price reclaims the moving average or clears the reversal-day high. In this case, the trader is adding as the setup confirms and the stock moves in the intended direction, rather than adding simply because the price has declined further.

Position size can be adjusted as the trade develops and as overall portfolio exposure changes. A trader may begin with a smaller position, then increase size as the stock confirms and capital becomes available from other positions. Each additional purchase should still be evaluated against the current stop, total dollars at risk, and overall portfolio exposure. A technically attractive setup can still cause unnecessary damage when size is increased without considering how much risk has already been added.

Position Sizing

The First Pullback to the 50-Day

The first pullback to the 50-day moving average deserves special attention because many great leaders successfully defend that line at least once during their primary advance. The stock may have risen rapidly after the breakout, become extended above the 10-day and 20-day lines, and then corrected sharply enough to frighten most holders.

By the time price reaches the 50-day, the stock may be 15 to 25 percent below its high. That is often enough to flush out late breakout buyers and short-term traders. Institutions that missed the original move may use the decline to establish positions, while existing holders may add shares.

The setup is strongest when the 50-day line is rising and the stock has not repeatedly tested it. A first test is generally more attractive than a third or fourth test because the support level has not yet been weakened by repeated selling.

Later tests can still work, but each visit should be evaluated more cautiously. A stock that repeatedly returns to the 50-day frequently may be losing momentum. If the stock eventually breaks the line on heavy volume, closes near the low, and fails to recover quickly, the pullback thesis has changed.

A genuine shakeout should produce a reasonably fast response. The stock does not need to move directly to new highs, but it should reclaim support, close strongly, or hold tightly near the top of the reversal range. If price continues lower, the trader should stop treating the decline as normal.

Common Mistakes

The first mistake is buying too early. A trader sees a stock decline 8 or 10 percent and assumes the pullback is already substantial. The stock then continues another 10 percent toward the actual support level. Patience is essential because meaningful pullbacks can unfold over several sessions or continue developing for several weeks.

The second mistake is buying without identifying support. A lower price is not a setup. The trader must know why demand should appear in that area and where the position will be sold if the level fails.

The third mistake is assuming every lower wick is an upside reversal. The closing location, support level, volume, prior range, and next-day action all matter. A weak intraday bounce in the middle of a downtrend is not the same as a sharp rejection of the first 50-day test in a market leader.

The fourth mistake is using conviction to ignore technical failure. A great company can still have a broken chart. If the stock breaks the reversal low, closes decisively below support, and continues lower, discipline must override the story.

The fifth mistake is treating every market environment the same. Pullback buying works best when the market is healthy and leading stocks are respecting support. When reversals repeatedly fail and 50-day lines are being broken across the market, the strategy should be reduced or suspended.

A Simple Framework for Evaluating Any Pullback

The first question is whether the general market is healthy. If the market is weak, the odds of support holding are reduced.

The second question is whether the stock remains in a defined uptrend. Higher highs, higher lows, and a rising 50-day moving average provide the basic structure.

The third question is where support should appear. Before considering an entry, the trader should identify the level where buyers are expected to step in, such as the 20-day moving average, the 50-day moving average, a prior pivot, the top of a base, or another technically meaningful area. The trader can then evaluate whether the stock actually respects that level and shows evidence of support.

The fourth question is how much confirmation is required. The trader can anticipate support, buy the level, wait for an upside reversal, or wait for the reclaim.

The fifth question is where the trade is wrong. The stop may be below support, below the reversal low, below the confirmation-day low, or based on a decisive close beneath the level.

The final question is how many shares can be owned without exceeding the account’s risk limit. The technical stop should determine the position size, not the other way around.

“The position size on a trade is determined by the stop, and the stop is determined on a technical basis.” -Bruce Kovner

Conclusion

Remember: “The trend is your friend, except at the end when it bends.”
— Ed Seykota

Eventually, every stock will stop finding support and its advance will end. Until that happens, however, constructive pullbacks can provide excellent opportunities to participate in a continuing uptrend.

Buying pullbacks is not about purchasing weakness indiscriminately. It is about buying temporary corrections in leading stocks whose primary trends remain healthy. The best setups occur when the broader market is supportive, the company has strong growth fundamentals and institutional sponsorship, price is approaching a meaningful technical level, and the trader can clearly define the risk before entering.

Pullbacks provide additional opportunities to enter a stock after missing the original base breakout. This matters because true market leaders can continue advancing for months or even years, producing several actionable setups along the way. Pullbacks can also offer existing shareholders a lower-risk way to add to winning positions as the stock continues to prove itself.

Different stocks often respect different areas of support, and the most relevant moving average may also depend on the trader’s timeframe. Shorter-term swing traders may focus more closely on the 10-day and 20-day moving averages, while position traders may give greater importance to the 50-day line and the broader trend.

An exceptionally powerful leader may repeatedly find support at the 10-day moving average. A stock advancing at a steadier pace may offer tactical entries near the 20-day line, while the first meaningful pullback to the 50-day moving average can provide one of the most important opportunities within a major advance. Prior resistance, earlier pivot points, and the top of a base can also become support, especially when they align with a rising moving average.

There are several valid ways to enter a pullback. Buying as price approaches support offers the lowest entry price, but it also provides the least proof that support will hold. Buying an upside reversal offers evidence that buyers have stepped in and regained control. Waiting for price to reclaim a key level provides greater confirmation, but it requires accepting a higher entry price.

No entry method eliminates uncertainty. The trader must decide how much price advantage to sacrifice in exchange for additional proof, then size the position according to the distance between the entry and the logical stop. A wide reversal day may be technically attractive, but if the reversal low is far below the closing price, the position must be smaller to keep total account risk consistent.

Discipline must always take priority over conviction. A pullback remains an opportunity only while the larger trend is intact and buyers continue to defend meaningful support. Once that support fails and the stock cannot recover it, the trader should respect the evidence, exit the position, and wait for a better setup.

Great stocks will always experience pullbacks, but that does not mean you should buy every decline. The goal is to recognize the select pullbacks in which the market environment, stock quality, trend, support level, reversal behavior, and risk all align.

One final challenge: while writing this article, I will admit that I did not dig through all my model books to include every great historical example. Take this as a challenge to perform some additional chart work of your own. Study the different types of pullbacks discussed in this article across both recent market leaders and the great winning stocks of the past.

That extra hands-on chart review is what will make these concepts truly stick.

The Nasdaq closed higher for the week, appears to be finding support near its 50-day moving average, and is once again trading above all of its key moving averages. The S&P 500 has acted even better, finishing the week approximately 0.6% below its all-time high and avoiding much of the technical damage experienced by the growth-heavy indexes. Both the Nasdaq 100 and S&P 500 have been forming pennant-like consolidations, with a series of lower highs developing against progressively higher lows.

These patterns often represent periods of contraction following a strong advance. Price volatility narrows, volume begins to dry up, and the market gradually works through overhead supply until buyers or sellers eventually take control. When the pattern finally resolves, the resulting move can be powerful, but the direction should not be assumed in advance. The indexes are holding support and tightening constructively, although they have not yet produced the decisive breakout and volume confirmation that would signal the beginning of another sustained leg higher.

The broader market indicators continue to present a mixed, but generally constructive, picture. Nasdaq net new highs versus new lows remain extremely strong and have arguably improved during the recent rotation, as strength expanded into new sectors and industry groups while several of the prior technology and semiconductor leaders corrected. Breadth and participation are not exceptional, but good, while the VIX has declined sharply back toward 15.

The primary caution remains distribution. Institutional selling has increased substantially in the Nasdaq Composite and Nasdaq 100, which is particularly important for growth investors because those indexes contain many of the stocks that led the advance from the March lows. Distribution pressure has improved in the S&P 500, however, where the current count is materially lower and the index remains close to record territory. This divergence reinforces the idea that the weakness has been concentrated more heavily in growth stocks than across the market as a whole.

The more important change has been the lack of consistency beneath the indexes. From April through early June, leadership was clearly aligned across the major indexes, sectors, subsectors, industry groups, and individual growth stocks. Technology, semiconductors, computer hardware, software, and other growth-related areas repeatedly occupied the top of the relative-strength rankings, making it easier to identify where institutional capital was flowing and which stocks deserved the greatest attention.

That consistency has disappeared during the past several weeks. Strength has rotated rapidly from one area to another, often lasting only a few weeks before leadership shifts again. The current environment feels increasingly similar to the period from last November through March, when the major indexes remained relatively stable but industry-group leadership changed frequently, breakouts became less dependable, and traders experienced repeated small losses while chasing each new pocket of strength.

The latest week provided another clear example. Energy returned to the top of the short-term rankings as geopolitical developments involving the United States and Iran lifted oil and energy related stocks and industry groups. Transportation and commercial services also showed strength, while the Nasdaq 100 returned to the top of the major-index rankings and Technology moved back near the top of the sector rankings.

Several technology-related groups improved as well. Semiconductor ETFs such as SOXX and SMH had a strong week, while internet media, social media, telecommunications, and select software groups also showed renewed relative strength. That is a significant change from the previous month, when leadership was concentrated more heavily in value stocks, the Russell 2000, Financials, Health Care, Industrials, biotechnology, pharmaceuticals, insurance, and banks.

The improvement in technology is encouraging, but the recovery remains incomplete. Several former leaders, including SNDK, WDC, MU, and STX, found support near their 50-day moving averages, yet neither the indexes nor many of the individual stocks attracted the type of strong volume that would confirm aggressive institutional accumulation. Price is improving, but buyers have not yet demonstrated the same conviction that was visible during the strongest part of the April to June advance.

Biotechnology provides another example of how quickly leadership has been changing. The group emerged as one of the strongest growth areas after technology weakened and ranked near the top of the one-month relative-strength standings. During the latest week, however, biotechnology weakened further while capital rotated toward Energy, transportation, commercial services, and selected technology groups.

This is not the broad, consistent growth environment that existed from April through early June. When we zoom out, the primary trend remains intact, the major indexes are holding intermediate-term support, and the underlying indicators do not suggest that the bull market has broadly broken down. However, the tape has become more fragmented, leadership has become less persistent, and the list of compelling growth-stock setups has narrowed. The stocks appearing in my screens are simply less impressive than they were during the strongest part of the advance.

A market can remain in a primary uptrend while becoming considerably more difficult to trade. The question now is whether the current consolidation will allow the former leaders to repair, new bases to form, and institutional demand to return, or whether the rapid rotation and elevated Nasdaq distribution will continue producing the same frustrating, death-by-a-thousand-cuts environment that characterized last fall and the early months of 2026.

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I get this question a lot, and I have answered it in past posts, videos, and conversations, but it continues to come up, so I figured it was worth writing about again for anyone who may have missed those earlier discussions.

You find a true market leader.

The earnings and sales are strong. Relative strength is high. The stock builds a quality cup with handle, VCP, or another constructive base. Price tightens, volume dries up, and demand comes in on the breakout.

Everything looks right.

Then you measure the distance between your entry and the logical technical stop.

It is not 6%, 7%, or 8%.

It is 10%, 11%, or even 12%.

Now you have a decision to make.

• Do you follow William O’Neil’s rule and pass on the trade?

• Do you place the stop at 8%, even though that level sits inside normal price action?

• Do you widen the stop and reduce your position size?

• Or do you use a different entry tactic to tighten the risk?

This is a real issue for growth stock and momentum traders. It also leads to a larger question that every serious trader eventually has to answer:

When should you follow a proven rule exactly, and when have you earned the right to adapt it?

In this article, I will explain why O’Neil’s 7% to 8% rule still works and why traders can absolutely continue to follow it. I will also look at lessons from Mark Minervini, Kristjan Kullamägi, Dan Zanger, and Bruce Kovner for traders who choose to pursue exceptional market leaders that fall outside O’Neil’s traditional framework. We will examine how tighter entries, technical stops, position sizing, Opening Range Breakouts, and staggered stops can help manage risk and maintain concentration in those situations.

The 7% to 8% Rule Is Still Foundational

I still think William O’Neil’s 7% to 8% rule is one of the greatest risk management principles ever created, and I absolutely still use it as the foundation for how I think about risk.

The purpose of the rule is simple. Never allow a small, manageable loss to turn into a large, portfolio-damaging loss.

That principle is timeless.

At the same time, many of today’s market leaders have large ADRs and ATRs. You can still have a very good setup where price tightens, volume dries up, and demand comes in on the breakout, but because some of these stocks naturally move more, the logical technical stop below the handle or recent support may be 10%, 11%, or even 12% away instead of fitting neatly within O’Neil’s 7% to 8% guideline.

I do not want to put words in O’Neil’s mouth because he is no longer with us. Based on his books and interviews, I think it is fair to say he strongly believed in the 7% to 8% rule and preferred buying setups that naturally fit within that framework.

Whether O’Neil would have modified or changed his 7% to 8% rule for some of today’s higher-volatility leaders is something none of us can know with certainty. However, because he traded highly volatile stocks during periods such as 1999 and early 2000, it seems more likely that he would have continued to apply the same framework rather than materially change it.

Why I Still Prefer Tighter Stops

Personally, I try to stay as close to O’Neil’s principles as possible because I believe tighter risk allows for greater concentration.

If I can find two equally good setups, I will almost always choose the one where my technical stop is 6% to 8% away rather than 12%.

I may still only be risking 1% or 2% of my account either way because position sizing controls my total account risk. However, the tighter stop allows me to own a larger position.

If the trade works, it can have a much more meaningful impact on my portfolio.

For example, assume I am willing to risk $1,000 on a trade.

If my stop is 6% away, I can build a much larger position than I can with a 12% stop. My dollar risk remains the same, but my exposure to the winning trade is larger.

That is the real advantage of tight setups.

It is not just about taking a smaller loss. It is about creating the ability to concentrate more capital into your best ideas without increasing total account risk.

The Power of Low-Risk Entries

That is something Mark Minervini has emphasized for years.

He looks for tight, low-risk entry points because they allow for larger position sizes. The smaller the distance between the entry and the logical stop, the more concentrated the position can be while keeping account risk controlled.

Kristjan Kullamägi does something similar with many of his Opening Range Breakout entries. His technical stop might only be 2%, 3%, or 4% away, allowing him to size much larger while still keeping his total account risk constant.

That is a major advantage when the trade works.

A 15% position that gains 30% has a much larger effect on the portfolio than a 7% position that gains the same amount.

Both trades may have carried the exact same initial account risk. The difference came from the distance to the stop.

What I Do When the Proper Stop Is Wider Than 8%

That said, I have not ignored exceptional leaders simply because the proper technical stop was wider than 8%.

I have taken trades where the only logical stop was around 10% to 12% away.

One example for me was SNDK. The chart told me where the stop belonged, so I simply reduced my position size. My total account risk stayed exactly the same.

SNDK offered a good setup, but the logical technical stop was approximately 10.1% below the entry. I reduced my position size so the trade still represented only 1% account risk.

I also could have used some of the other tactics I teach to create a tighter entry, such as an intraday Opening Range Breakout, placing the stop at the low of the day, or another lower-risk entry technique.

Those approaches can sometimes bring the stop closer to the 7-8% range, but they will not always be available.

Sometimes the chart provides a clean, tight entry.

Sometimes it does not.

When it does not, you have four choices:

1. Reduce your position size.

2. Use a more precise entry technique.

3. Wait for another setup.

4. Pass on the trade.

All four are valid.

What is not valid is forcing an 8% stop into the middle of normal price action simply because you want the trade to fit a rule.

The Chart Determines the Stop

This philosophy is very similar to what Bruce Kovner said in Market Wizards:

“Whenever I enter a position, I have a predetermined stop. That’s the only way I can sleep. I know where I’m getting out before I get in. The position size on the trade is determined by the stop, and the stop is determined on a technical basis... I always place my stop beyond some technical barrier.”

That quote has always resonated with me.

The stop should be placed where the trade thesis is invalidated, not at a random percentage that happens to be convenient.

If the stock is trading inside a range, placing your stop inside that same range may simply guarantee that normal volatility takes you out.

The chart should tell you where you are wrong.

Then position sizing tells you how many shares you can own.

That is why this is one of the most important principles in my entire process:

The chart determines the stop. The stop determines the position size. The position size determines my account risk.

O’Neil Created a Framework Investors Could Follow

Although How to Make Money in Stocks has become foundational reading for many professional traders, I also think one of O’Neil’s greatest strengths was creating a simple, repeatable framework that investors could actually follow with discipline.

That is very different from saying it is the only way to trade successfully.

O’Neil gave traders a complete structure:

• What types of companies to look for

• What strong earnings and sales growth look like

• How institutional accumulation appears on a chart

• How to identify proper bases

• Where to buy

• When to sell

• Where to add

• How to keep losses small

For the broad investing public, simple and repeatable rules are incredibly valuable.

Most investors do not fail because their rules are too strict. They fail because they have no rules at all, or they constantly change them based on emotion.

Earn the Right to Adapt the Rules

For me, learning from O’Neil, Minervini, David Ryan, Dan Zanger, Bruce Kovner, and many other great traders has been incredibly valuable.

But eventually, every trader has to build a process that fits their personality and has statistical evidence behind it.

The key is not changing rules simply because you think you know better.

The key is changing them only after you have:

• Backtested the idea

• Forward-tested it in live markets

• Journaled the results

• Reviewed a large sample of trades

• Proven that the adjustment still produces positive expectancy

Most newer traders do not have that data yet. That is why I generally recommend staying very close to O’Neil’s original framework until you have earned the right to make adjustments.

You should not break a proven rule because one trade looks exciting.

You should adapt a rule only when your own data shows that the adjustment improves your process over many trades.

There Are Still Plenty of Sub-8% Setups

It is also important to remember that there are still plenty of great leaders that provide excellent entries with technical stops under 8%.

You may simply need to be more patient and selective.

NVDA in 2024 had an excellent VCP-style setup that many of us were discussing at the time. It was not a secret. The stock offered a logical entry with a technical stop comfortably inside O’Neil’s framework.

NVDA offered an entry near $50.40 with a logical technical stop near $47.10, representing approximately 6.6% risk from the entry.

WDC in 2025 provided several strong entries with stops under 8%. It also had many of the CAN SLIM characteristics we want to see, including strong earnings and sales growth.

WDC produced multiple low-risk entries during its advance. The example shown uses an entry near $78.88 and a technical stop near $73.20, representing approximately 7.2% risk.

MU’s April 22, 2026 cup-with-handle-type setup was another excellent example. The entry and logical stop allowed the trade to remain within the traditional 7% to 8% risk framework.

MU’s April 2026 setup offered an entry near $470 with a logical technical stop near $434, representing approximately 7.7% risk.

Those are exactly the types of setups I prefer.

They combine:

• Strong growth fundamentals

• Leadership

• Constructive price action

• Tight risk

• The ability to build meaningful concentration

Taken together, these charts show both sides of the discussion.

MU, WDC, and NVDA demonstrate that great leaders can still provide entries with technical stops comfortably under 8%.

SNDK demonstrates that an exceptional leader can also present a quality setup where the logical stop falls outside that threshold.

Qualcomm in 1999: Volatility Is Not New

Even I began to wonder whether some of today’s leading stocks are simply more volatile than the market leaders of the past. Many current leaders have larger ADR and ATR percentages, and their price bars can make a traditional 7% to 8% stop appear difficult to use.

Then I thought about a point David Ryan has made: “there is nothing new under the sun.”

The entire purpose of William O’Neil’s historical research was to study the greatest winning stocks across different market cycles and identify the characteristics that continued to repeat. The companies, industries, and technology may change, but human behavior and the relationship between price, volume, supply, and demand remain remarkably consistent.

That led me back to Qualcomm in 1999, one of the historic market leaders featured in O’Neil’s work.

William O’Neil’s Qualcomm chart identifies the breakout and buy point during the stock’s historic 1999 advance. The chart shows the buy, but it does not disclose the exact stop he used.

When I recreated the setup using historical data, I found something interesting. If the stop were placed below the most recent higher low, where many traders might consider placing a standard technical stop, the distance from the entry would have been approximately 10.1%.

That would have fallen outside O’Neil’s traditional 7% to 8% guideline.

However, we do not know where O’Neil actually placed his stop because his chart only identifies the buy point. It would therefore be a mistake to claim with certainty that he used the wider technical level.

Another valid approach would have been to place the stop at the low of the breakout day. From the approximate $4.37 entry, that stop would have been near $4.10, representing roughly 6.2% risk and fitting comfortably within O’Neil’s framework.

Using the prior higher low as the stop would have created approximately 10.1% risk. Using the low of the high-volume breakout day would have reduced the risk to approximately 6.2%.

This is similar in spirit to the low-of-day risk management used by traders such as Dan Zanger and Kristjan Kullamägi, although it does not necessarily require using an Opening Range Breakout (ORB) entry.

After Qualcomm broke out, the stock never returned to the original entry area and went on to produce an extraordinary advance. The price action was also highly volatile. The weekly bars do not look materially different from many of the powerful, fast-moving market leaders we see today.

Qualcomm’s 1999 advance demonstrates that powerful market leaders with significant volatility are not unique to the current market.

The lesson is not that O’Neil ignored his own rule. We do not know his exact stop, and I do not want to put words in his mouth.

The lesson is that volatility is not new. Stocks with wide price swings and explosive advances existed during O’Neil’s era as well. Qualcomm also demonstrates how a more precise technical stop, such as the low of the breakout day, could have allowed a trader to participate while still remaining within the traditional 7% to 8% framework.

In many ways, this strengthens the case for O’Neil’s rule rather than weakening it. The solution is not always to accept a wider loss. Sometimes the solution is to improve the entry and stop location, identify a more precise technical level, reduce the position size, or wait for a setup that naturally provides tighter risk.

Another Option: Staggered Stops

One additional option is using staggered stops.

This is not something William O’Neil discussed as part of his traditional 7% to 8% framework. It is a more advanced trade-management technique that I have picked up from studying other experienced traders over the years.

Going back to the SNDK example, placing the entire position at the original technical stop below the last higher low resulted in a 10.13% stop-loss distance.

However, another approach would have been to place 50% of the shares at the low of the breakout day and the remaining 50% at the original technical stop below the last higher low.

That would have reduced the blended stop-loss percentage from 10.13% to approximately 8.32%, bringing the overall risk much closer to O’Neil’s traditional guideline.

Because the blended stop was tighter, I also could have increased my position size and gained more exposure to the trade while keeping my total account risk exactly the same.

This does not mean the trade suddenly becomes safer or that the chart should be ignored. It simply means that the position is being managed across two technically valid exit levels rather than placing every share at the widest stop.

Another possibility, for someone who was available to follow the stock intraday, would have been to use a Dan Zanger or Kristjan Kullamägi-style Opening Range Breakout entry. A five-minute Opening Range Breakout entry could have produced a stop of approximately 3.3% using the low of the day. A 30-minute Opening Range Breakout entry could have produced approximately 7.38% risk with a single stop at the low of the day.

These are more advanced techniques that require additional screen time, experience, preparation, and discipline. I cover them in the course, but I do not discuss them as frequently because they may not fit most traders’ experience levels, schedules, or lifestyles.

Final Thoughts

My preference is simple.

I favor stocks that naturally fit O’Neil’s framework because tighter risk allows for greater concentration.

But…. when an exceptional market leader requires a slightly wider technical stop, I am comfortable reducing my position size rather than forcing an arbitrary stop that sits in the middle of normal price action.

There are still plenty of outstanding leaders that provide excellent entries with stops under 8%. Sometimes you just need to be patient enough to wait for them.

Qualcomm’s 1999 advance also reminds us that highly volatile market leaders are not unique to today’s market and that a more precise entry and stop location can sometimes keep the trade within O’Neil’s framework.

When a setup falls outside that threshold, decide in advance what your rules allow.

• You can wait for another setup.

• You can use a tighter entry technique.

• You can use a tighter stop technique.

• You can reduce position size.

• Or you can pass.

You do not have to swing at every pitch.

But whenever you do take a trade, know where you are getting out before you get in.

The chart determines the stop. The stop determines the position size. The position size determines your account risk.

Ready to Take the Next Step?

If you are ready to expand on these concepts and build a more complete momentum trading process, consider becoming a paid subscriber. All paid subscribers receive access to the Momentum Trading Strategy Course, where I go deeper into stock selection, entries, position sizing, risk management, Opening Range Breakouts, and many of the techniques discussed in this article.

Paid subscribers also receive access to the Momentum Trading Strategy Software, which is designed to help you identify leading stocks, uncover potential setups, and focus your research on the names showing the strongest fundamental and technical characteristics.

Become a paid subscriber to access the full course and start using the software today.

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How should I set up my chart on TradingView?

It is a good question because TradingView gives you access to thousands of indicators. RSI, MACD, stochastics, Bollinger Bands, momentum oscillators, trend indicators, volume indicators, and countless custom scripts are all available with a few clicks.

That accessibility can create a problem.

Many beginner traders keep adding indicators because they believe the next one might finally tell them exactly when to buy and sell. Before long, the chart is covered with so many lines, colors, signals, and dashboards that the trader can barely see the price.

In the video above, I begin by showing a chart loaded with indicators.

That is not how I trade.

My actual chart setup is much simpler.

Start With Price and Volume

The foundation of my chart is price.

I want to see whether a stock is making higher highs and higher lows, whether the price action is tightening, whether the stock is finding support, and whether buyers or sellers appear to be in control.

Volume helps confirm what is happening beneath the price action.

When a stock begins tightening while volume steadily declines, it can indicate that the available supply of shares is drying up. If the stock then breaks through resistance on a meaningful increase in volume, that can signal that demand is entering the stock.

You do not need an oscillator to see that.

You need to understand the relationship between price, volume, supply, and demand.

In the video, I use NVDA as an example. The stock formed a clear trend, moved sideways, tightened near its highs, and experienced declining volume during the consolidation. When it finally broke through the range, volume expanded significantly.

That basic sequence is at the heart of many of the setups I trade:

A strong prior move, constructive consolidation, tightening price action, declining volume, and expanding demand during the breakout.

The Moving Averages I Use

Moving averages can help make the trend easier to see, but they should support your price analysis rather than replace it.

The two primary moving averages I watch are:

• The 50-day moving average

• The 200-day moving average

The 200-day helps me evaluate the stock’s longer-term trend. A rising 200-day moving average, with the stock trading above it, generally suggests that the long-term trend remains healthy.

The 50-day helps identify the intermediate trend. It can also show whether institutional investors appear willing to support the stock during normal pullbacks.

For shorter-term trade management, I may also use:

• The 10-day moving average

• The 20-day moving average

These shorter moving averages can help manage a position after entry. For example, a break of the 10-day or 20-day may be a reason to reduce part of a position, tighten a stop, or become more defensive.

That does not mean every break requires selling the entire position. The action you take depends on the stock, the size of your profit, the market environment, and your trading time frame.

On a weekly chart, the same concepts apply. The 10-week moving average is approximately equivalent to the 50-day, while the 40-week is similar to the 200-day.

Why I Use Log Charts

I generally set my charts to logarithmic scale because I think in percentages rather than dollar amounts.

A move from $10 to $20 is a 100 percent gain.

A move from $100 to $110 is only a 10 percent gain.

On an arithmetic chart, both moves are displayed according to the number of dollars gained. On a log chart, they are displayed according to the percentage move.

For traders and investors who evaluate performance, risk, and returns in percentage terms, the log chart usually provides a more accurate visual representation.

Indicators Are Tools, Not Answers

I do use several additional tools, but I use them for specific purposes.

I do not add an indicator simply because it looks interesting. Every indicator should answer a question or help me make a decision.

For example, I use a position-sizing tool to calculate how many shares I can purchase based on my entry, stop, account size, and maximum acceptable portfolio risk.

If I enter a stock with a stop that is 7 or 8 percent below my entry, that does not mean I am risking 7 or 8 percent of my account. I can adjust the number of shares so that the total loss would still equal only 1 percent of the portfolio if the stop is triggered.

I may also use an ATR moving-average extension tool to identify when a stock has become unusually extended from a key moving average. This can help identify an area where it may make sense to sell part of the position into strength.

An ATR trailing stop or Donchian Channel can provide another method for managing a winning position and remaining in a longer-term trend.

These tools are not magical signals. They simply help with specific parts of the trading process:

• Position sizing

• Risk management

• Selling into strength

• Trailing a winning position

• Identifying potential trend changes

Once a tool has served its purpose, I often remove it from the chart.

I do not want unnecessary information competing for my attention.

Fundamentals Still Matter to My Process

Although I place the highest priority on price, I am not purely a technical trader.

I consider myself a techno-fundamental trader.

I want to find stocks with strong price action, but I also want to see characteristics such as accelerating earnings, strong sales growth, healthy margins, institutional sponsorship, and leadership within a strong industry group.

If two stocks have similar technical setups, but one has stronger growth fundamentals and belongs to a leading industry, I will usually favor that stock.

The fundamentals and relative strength help put the stock on my radar.

Price action and volume determine whether I actually take the trade.

Your Chart Should Force You to Read the Market

A clean chart forces you to develop the ability to recognize supply and demand.

You begin noticing when price bars become smaller.

You recognize when a stock begins making higher lows.

You see when volume starts drying up during a pullback.

You notice when a stock repeatedly finds support at a major moving average.

You learn to distinguish between normal consolidation and abnormal selling.

A beginner will not recognize everything immediately. That is normal.

The skill comes from studying hundreds and eventually thousands of charts. Study the greatest-performing stocks in history. Look at what they did before their major advances. Compare their price and volume characteristics. Pay attention to how they behaved around moving averages and how volume changed during consolidations and breakouts.

Over time, you will begin recognizing the same patterns in real time.

There is no perfect indicator, and there is no chart setup that removes uncertainty from trading.

For the style of momentum growth trading I practice, the foundation remains remarkably simple:

Price, volume, a few widely followed moving averages, proper position sizing, and disciplined risk management.

Your chart should probably look much more bare than you think.

That is not a weakness.

It means you are learning to read what actually matters.

One Final Thing I Forgot to Mention

This video was originally supposed to be a short, beginner-friendly explanation of how to set up a TradingView chart. Instead, I completely went off the reservation and turned it into a 25-minute discussion about price, volume, moving averages, position sizing, trade management, and several of the tools I use.

Since I already covered all of that, there is one final concept I should mention: the importance of looking at multiple time frames.

In the NVDA example, I would have executed the trade on the daily chart as the stock broke through the entry area. However, when you zoomed out, NVDA was also breaking out on the weekly chart.

Many of the best trades do not just look good on the specific time frame you are using for the entry. The setup also makes sense when you zoom out and examine the larger structure.

When in doubt, zoom out.

A daily breakout is often more meaningful when the weekly chart is also showing a strong base, tight price action, and a move toward or into new highs. The higher time frame provides the broader context, while the lower time frame helps you identify and manage the entry more precisely.

You will see this same principle throughout the MTS Course, even with shorter-term and intraday trades. An intraday setup may provide the execution trigger, but the stock may also be setting up well on the daily and weekly charts.

When multiple time frames are aligned, you are not relying on one isolated pattern. The longer-term trend, intermediate setup, and shorter-term entry are all supporting the same idea.

A breakout near or into new highs can also reduce the amount of overhead supply above the stock. There may be fewer trapped investors waiting to sell simply to get back to breakeven, which can give the stock a clearer path if demand continues to come in.

You do not need every time frame to look perfect, but before entering a trade, always zoom out.

Some of the best setups look good not only on the time frame where you are buying them, but across the higher time frames as well.

Paid members now have access to several major updates inside the Momentum Trading Strategy software.

For current members, this post will walk you through what has been added and how each feature can improve your research and stock-selection process.

For free subscribers, this is a closer look at the software and tools included with a paid Momentum Trading Strategy membership.

The goal behind every update remains the same:

Help you identify real leadership, understand what is driving the move, organize your ideas, and make better trading decisions without constantly jumping between multiple platforms.

New Ticker Information and News Panel

The Stock Scanner now includes a Ticker Information and News side panel.

This gives you a quick company overview, recent news, major corporate developments, and relevant SEC filings without leaving the scanner.

When a stock begins showing up in your relative strength screens, gaps higher on volume, or makes an unusual move, you can now quickly investigate what may be driving it.

The news feed is designed to surface meaningful catalysts such as:

• Earnings

• Guidance changes

• Analyst upgrades and downgrades

• FDA announcements

• Major contracts

• Acquisitions

• Strategic partnerships

• Management changes

• SEC filings

• Other significant corporate events

This is not intended to replace a specialized, lightning-fast news service.

Active day traders or proprietary trading firms use dedicated platforms such as Briefing.com or Trade The News, which are great resources if that’s what you need.

This feature is designed for general stock research and identifying the types of major events that can create an episodic pivot or materially change the story behind a stock.

Catalysts Only Filter

You can also turn on the new Catalysts Only filter.

This removes much of the general headline noise and focuses the feed on news and filings that may actually matter to the stock.

It gives you a faster way to answer one simple question:

Did something important just happen?

This can be especially helpful when reviewing earnings gaps, unusual volume, sudden price moves, and potential episodic pivots.

Institutional Sponsorship Side Panel

The software has always included a Fund Ownership Summary showing whether the number of funds owning a stock is increasing or decreasing each quarter, along with the quarterly growth rate.

You can now go much deeper.

The new Institutional Sponsorship side panel allows you to see:

• Which funds own the stock

• Which funds recently opened new positions

• Whether recognizable or high-quality funds are involved

• Changes in institutional participation

• Insider buying and selling activity

This helps you evaluate more than the total number of funds.

You can now begin asking:

• Who is behind this move?

• Are new institutions beginning to build positions?

• Are high-quality funds involved?

• Are company insiders buying shares?

Institutional sponsorship is an important part of William O’Neil’s CAN SLIM framework.

Strong price action becomes more meaningful when it is supported by accelerating fundamentals, increasing fund ownership, quality sponsorship, and constructive insider activity.

This data should never be viewed in isolation, but it can provide important context behind a stock’s move.

New vs Benchmark Feature

One of the largest additions is the new vs Benchmark feature inside the Advanced Filters.

Traditional relative strength measures how a stock is performing relative to the S&P 500 and then ranks that performance against the other stocks in the market.

The new vs Benchmark feature allows you to make a much more specific comparison.

You can compare a stock against:

• A major market index

• A sector ETF

• An industry group ETF

• Another individual stock

• Any other supported ticker

For example, suppose you are researching a leading semiconductor stock.

You may want to compare it against:

• QQQ, to measure performance against the Nasdaq 100

• XLK, to compare it against the broader technology sector

• SOXX, to compare it against the semiconductor group

• Another leading semiconductor stock, to compare two potential trade candidates

A stock may be outperforming the S&P 500 while still underperforming its own sector or industry group.

Another stock may be outperforming the market, its sector, its industry group, and the other leading stocks within that group.

That second stock may be displaying much stronger leadership.

Multiple Benchmark Time Frames

The vs Benchmark feature can also be analyzed across multiple time frames.

This helps you determine whether a stock’s outperformance is:

• Very recent

• Developing over the intermediate term

• Consistent across several time frames

• Beginning to weaken after a long period of leadership

A stock can still look strong over the past year while quietly losing strength over the past few weeks.

Another stock may only recently be emerging from the middle of the pack and accelerating into leadership.

Looking across different time frames helps reveal that difference.

Rate of Change

The new Rate of Change feature measures whether a ticker’s outperformance versus the selected benchmark is accelerating or decelerating.

A stock can still be outperforming its benchmark while its relative advantage is beginning to weaken.

Another stock may only be modestly outperforming the benchmark, but that outperformance could be rapidly accelerating.

Rate of Change helps you identify whether relative strength is:

• Improving

• Accelerating

• Stable

• Decelerating

• Beginning to deteriorate

This can help you identify emerging leadership earlier and recognize when an existing leader may be quietly losing momentum.

Benchmark Percentile Column

You can also enable the Show Percentile column.

The raw vs Benchmark score tells you how much a stock is outperforming or underperforming the selected benchmark.

The percentile column then ranks that score against the full Stock Scanner universe.

For example, a percentile of 98 means the stock’s vs Benchmark score is higher than 98% of all stocks in the universe.

The universe remains stable and does not change when you apply scanner filters. This gives you a consistent way to compare a stock’s benchmark-relative performance against the broader market, rather than only against the filtered results currently on your screen.

In simple terms:

vs Benchmark measures the stock’s performance relative to the selected benchmark.

Benchmark Percentile shows how strong that result is compared with all other stocks in the scanner universe.

Weighted Relative Strength

The RS Scan now includes a Weighted RS feature.

Weighted RS combines multiple relative strength time frames into one measurement while allowing greater emphasis to be placed on certain periods.

This can help you balance:

• Short-term responsiveness

• Intermediate-term momentum

• Longer-term leadership and consistency

A weighting that emphasizes shorter time frames may react faster when a stock begins accelerating or weakening.

A weighting that emphasizes longer time frames may help identify more persistent leadership while reducing the influence of short-term price moves.

This gives you another way to customize the scanner around your own trading process and preferred holding period.

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“Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I’m getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis. For example, if the market is in the midst of a trading range, it makes no sense to put your stop within that range, since you are likely to be taken out. I always place my stop beyond some technical barrier.”

- Bruce Kovner

That idea sounds simple, but most traders get it backwards. They decide how many shares they want to buy first, then they try to figure out where the stop should go afterward. That usually leads to random risk, oversized positions, or stops placed in areas where normal price action can easily shake them out.

In this video, I walk through how I apply Kovner’s principle using MU as a real example. The point is not simply to say, “Use a stop loss.” The point is to show how to think through the entire trade before getting involved.

• Where is the logical technical stop?

• How much room does the trade need?

• How much of the account should be at risk?

• And how many shares does that actually allow you to buy?

The stop has to come first. If a stock is forming a handle, tightening near highs, or pulling back within a normal range, it usually makes no sense to place the stop inside the range of that price action. The stop should be placed beyond a logical technical barrier where the trade idea is actually wrong.

Once the stop is defined, position sizing becomes much more objective. In the MU example, I show how the entry, stop, account size, and target risk percentage all work together to determine the correct share size. Instead of guessing or buying based on emotion, the trade is built from the risk backward.

From there, I also show how the trade can be managed as it starts working. That includes selling some into strength, moving the stop as the stock builds a profit cushion, adding back when the setup justifies it, and tracking total exposure so the position does not quietly become too large. This is where trade management becomes just as important as the original entry.

The goal is not to predict perfectly. The goal is to know where you are wrong, control the downside, and give the trade enough room to work when you are right. That is the difference between gambling on a setup and managing a position with a real process.

This is how I think about position sizing, stop placement, and risk management inside the Momentum Trading Strategy process. To learn more, dive into Modules 5 and 6 of the Momentum Trading Strategy Course.

Finding a great stock is only part of the job. Knowing how much to buy, where to get out, and how to manage the trade after entry is what keeps you in the game long enough to compound your account.

The stock market is giving us two very different messages at the same time.

If you are only watching the Nasdaq 100, growth stocks, technology, semiconductors, software, cybersecurity, or the AI-related leaders that dominated the move from the March lows into early June, the tape feels weaker, choppier, and far less forgiving. The Nasdaq 100 is back near its 50-day moving average, technology has gone from market leader to short-term laggard, and many of the former growth leaders are no longer acting the way they were during the strongest part of the rally.

But if you are watching the Dow, Russell 1000 Value, Russell 2000 Value, equal-weight indexes, health care, financials, industrials, insurance, banks, biotech, pharmaceuticals, medical equipment, and homebuilders, the market looks much healthier. That is the story of this week’s Big Picture Market Pulse.

We are not looking at a dead market. We are looking at a rotation.

Coming off the March 30 low, the leadership was clear. The Nasdaq 100, equal-weight Nasdaq 100, Russell 2000 Growth, and technology stocks led the market higher. XLK was the dominant sector, and the strongest industry groups were concentrated in semiconductors, software, cybersecurity, computer hardware, and the broader AI infrastructure trade.

Since the Nasdaq 100 peaked on June 3, that leadership profile has changed. The first warning shot came on June 5, when the Nasdaq 100 gapped lower, sliced through the 10-day and 20-day moving averages, and fell roughly 4% in a single session. That type of action is not normal, quiet consolidation. It was a clear change in character after a powerful advance.

At first glance, that sounds bearish, but the important point is that the weakness in growth stocks is not being confirmed by broad market deterioration. This is very different from what we saw in March, when new lows were expanding, breadth was deteriorating, and weakness was spreading across nearly every major area of the market.

Right now, new highs are still expanding, equal-weight indexes are holding up better, value is showing leadership, and several areas that sat out the technology-led rally are now starting to participate. This is not broad market deterioration, it is a rotation in leadership.

The big shift is simple: growth has cooled, value has improved, technology has weakened, and health care has taken over short-term leadership. Financials and industrials remain strong, while strength beneath the surface has moved into areas like pharmaceuticals, biotech, insurance, banks, medical equipment, health care services, homebuilders, and other groups that were not leading earlier in the rally.

This is why only watching one index can be dangerous. If you only watch the Nasdaq 100, the market looks fragile. If you only watch the Dow, value stocks, or health care, the market looks much stronger. The truth is somewhere in the middle.

The bull market is still alive, but leadership has changed. For growth investors, that means we either need to be patient and wait for our type of stocks to start working again, or we need to follow relative strength and see what fits our criteria in other areas of the market. For most growth stock investors and momentum traders, this is the kind of environment where it makes sense to reduce trading activity, exposure, and position size until growth stocks consolidate, build proper bases, and begin regaining leadership across the indexes, sectors, industry groups, and individual stocks.

In this week’s Big Picture Market Pulse, we are going to dive deeper into the market indicators, breadth, new highs versus new lows, sector rotation, industry group leadership, macro factors such as rates, credit, volatility, the U.S. dollar, and the current composite model to determine the overall health of the market. This gives us the proper context before moving into individual stock screening.

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