This is an introduction to the Trend Template, a condition for stock selection as described in Mark Minervini's book "Stock Trading Basics and Principles". We hope this will be helpful to you in your stock selection process.
Mark Minervini is a legendary individual trader who generated an astounding 338.42% annual gain in the 2021 United States Investment Championship (USIC). Please refer to this article to see how he trades.
This article will show you how to find stocks in an uptrend for those who
It is often said that when trading stocks or investing in stocks, it is a good idea to pick stocks that are in an uptrend, but I'm not sure how to actually find stocks that are in an uptrend.
When I first started investing, I thought that I should just buy stocks that were undervalued, and I would pick and buy stocks that I thought were undervalued because they had dropped significantly in a downtrend, only to get caught in a further decline and suffer a huge loss.
If you screen using the criteria described in this article, you too can reliably find stocks in an uptrend.
We will also show you how to actually use Finviz, a service that allows you to screen stocks (free plans available), to pick out stocks with almost the same conditions as the trend template.
Why are stocks in an uptrend better?
First, let's talk about whether stocks in an uptrend are a good idea in the beginning.
The reason why you should look for stocks in an uptrend is that most fast-growing stocks tend to start their rapid rise from an uptrend, as described in the following book.
Trade Like a Stock Market Wizard
Historical data clearly show that nearly all fast-growing stocks were in a clear uptrend prior to their significant rallies. In fact, 99% of the fastest-growing stocks were above their 200-day moving averages before rising by an order of magnitude, and 96% were above their 50-day moving averages.
I also use this condition to screen stocks in my daily trading. There are two things that I actually find good about selecting stocks that fit this criteria
- No more picking stocks at risk of being caught in a big decline.
- Many of the stocks whose share prices soar often accelerate from a gradual uptrend, increasing the chances of encountering fast-growing stocks.
Now let's review the terms and conditions of Mr. Minervini's trending template.
Trend template for selecting stocks in an uptrend
Here are Mark Minervini's criteria for selecting stocks in an uptrend.
- The stock price must be above the 150- and 200-day moving averages.
- The daily moving average is above the 200-day moving average.
- The 200-day moving average has been up for at least one month.
- The 50-day moving average is above the 150- and 200-day moving averages.
- Stock price is at least 25% higher than its 52-week low (best stocks are up more than 100%)
- Stock price is within 25% of its 52-week high.
- The RS (Relative Strength) is in the 90s. The Relative Strength line should not be descending.
- The stock price is above the 50-day moving average when it exits above the base.
The key point is that the 50-, 150-, and 200-day moving averages are used, and conditions 1 through 4 are conditions that confirm that each line is moving steadily upward.
Conditions 5 and 6 are used to pick out stocks that are repeatedly hitting new highs without bottoming out.
Confirmation for RS is provided later in this article.
Examples of Uptrending Stocks Exxon Mobil (XOM)
This is an example of an uptrend stock actually extracted by applying the conditions of the template, and you can see that the three moving averages are rising steadily.
Screening with FinBiz using the trend template.
Here are the screening conditions when the trend template is applied in FinBiz, excluding some conditions that cannot be set in Finviz, such as RS. We also added a few conditions for market capitalization and stock price.
Finviz's screening results for uptrending stocks can be found at this link
You can see that we were able to screen only stocks with a steadily rising chart as shown below.
What is RS (Relative Strength)?
The seventh condition listed, Relative Strength (RS), is an indicator that can be viewed on Investor's Business Daily (IBD), a comprehensive stock information website to which many individual investors in U.S. stocks subscribe, and it quantifies how strong the price is relative to other stocks.
IBD is also famous for being founded by legendary investor William O'Neill.
It can be seen as the RS line on the chart as shown below and also in the list of ratings. COMPOSITE RATING is the overall score including the RS number.
Please refer to the blog post by Takao Hirose, a.k.a. “Jichama".
http://markethack.net/archives/51801561.html
I also subscribe to IBD and use it as a reference when selecting stocks.
It may be difficult at first, but it is useful just to check the RS of stocks, and the IBD 50, a list of carefully selected good stocks, is updated frequently and is also very helpful. At $36.95/month, it is a bit expensive, but if you are serious about investing in stocks, I think this service is worth paying for.
The IBD 50 list can be found by selecting IBD 50 from the STOCK LISTS menu. Stocks with strong relative price movements and accelerating EPS and sales growth are selected by IBD.
Finally.
In this article, we have introduced the conditions for finding stocks in an uptrend. You can actually use FinBiz's services to efficiently find stocks in an uptrend and invest and trade successfully in stocks at a higher rate.
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