My personal

25lessons of
the
stock market
 Content
Introduction ..................................................................................5

Lesson #1: Start every trade small and increase it................6

Lesson #2: Look for mid term patterns to capture

big moves..............................................................10

Lesson #3: Always sell shares after a return below the

breakout level.......................................................13

Lesson #4: Never sell for a profit because of feelings, only

technical rules ......................................................16

Lesson #5: Hold a position above a rising EMA 21 and

ignore one day breakdowns ...............................20

Lesson #6: Hold your winners as long as possible.

The weekly chart is your friend!.........................23

Lesson #7: Let profits run to make a difference in

good times ............................................................27

Lesson #8: Position sizes must be dynamic.........................31

Lesson #9: Have multiple exit strategies ..............................34

Lesson #10: Look at your equity curve and see how you
perform .................................................................38

Lesson #11: Relative strength is more important than

fundamentals .......................................................41

Lesson #12: Stay in your niche and trade with discipline.....44

Lesson #13: Become an execution pro! ..................................47

Lesson #14: Look for young companies with new products,

services and high growth. ...................................49

Lesson #15: Focus on strong industries with disrupting

potential................................................................53

Lesson #16: Stock selection criteria only have one function

57

Lesson #17: Observe your watchlist and spend less time

with the indices. ...................................................60

Lesson #18: Volume is the blood of the stock market.

Only buy stocks with high blood pressure........63
Lesson #19: Be very selective: Have only the best stocks
on your watchlist. ................................................66

Lesson #20: Don’t look for trades, let the trades find you. ..69

Lesson #21: It’s an advantage to be in cash. ..........................72

Lesson #22: Sell into the strength to hold your equity

curve close to the high. .......................................74

Lesson #23: Trade only if you have an edge and ignore

the rest of the time. .............................................77

Lesson #24: Accept every detail of your trading approach. .80

Lesson #25: Ignore trades where you can’t build a

rewarding position...............................................83

Recommended books .................................................................86

 Introduction
I believe that trading is a craft and
craftsmen pass on their knowledge.
That's why I wrote this little book and
give it away for free.

During the years I have been trading,

I have learned a lot from other traders.
It is this knowledge that I have collected,
adapted, improved and made available for you in this book.

I know how difficult it is to start trading and to improve over

time. Hopefully, these 25 lessons will help you speed up your
learning curve and avoid one or two mistakes.

The lessons are timeless and applicable to both the stock

market and other markets. I personally am fascinated by
growth and momentum stocks and their often disruptive com-
panies. These companies are the engine of the economy. With-
out these companies, there would be no progress in products
and services. Best of all, you can benefit from them by trading
their stocks.

Julian Komar
 Lesson #1

Start every trade

small and increase it

In the past I sized my trading positions different according to

the conviction I had in the trade. A trade in which I had a huge
conviction, had a larger position size than a trade with a small
conviction.

This was a mistake, because you never know if the next trade is
a winner or loser. There is no way to know that! The chances
that you will have a winning trade is 50%.

This variation in position sizes leads to an increase of losses

and decrease of profits. Trades I was convinced of were loser
and trades I wasn’t convinced of were winners. So I lose big and
win small. What a punch for my ego. I admitted that I am not
able to forecast if the next trade is a winner or loser and a big
or small one.

6
T oday I accept that I can’t forecast the outcome of a trade. I
always think that the next trade will be a loser and I have
to do everything that the loss is small. That requires, that every
trade starts with the same position size and the same initial
risk.

As soon as the trade moves strongly in my direction, I add to

my position and buy more shares. It’s important to make sure
that follow up buys are smaller than the initial buy. Otherwise
your average entry price will increase too fast and you increase
the initial risk. Additionally you must give the stock enough
room to correct or consolidate.

Zscaler ($ZS): The full position was scaled in to limit the risk of a failed breakout. Additional
purchases were each smaller, on days of heavy volume and a gap up or breakout from a new base.
The stop loss has always been adjusted so that the risk did not increased.

7
I add more shares to winning positions after a pullback or on
strong accumulation days. The volume on those days should
be above average and the trend must be young. Never add to
trades which already moved for some months and start to
weaken.

If you approach every trade that way, you make sure that every
losing trade stays small and winning trades get bigger. Impor-
tant is that you don’t increase the initial risk and have a rule to
move the stop loss to breakeven. You should never let a big
winner turn into a loser.

Learnings

✔ Only add to trades which show you a profit.

✔ There should be enough distance to the entry price (>20%).

✔ Add to your position on breakouts or strong accumulation

days (e.g. gap ups). On breakouts there should be a consol-
idation of at least 2 weeks before.

✔ Follow up buys should be smaller: 1. 50% of your initial posi-

tion, 2. 25%, 3. 12,5%.

✔ After the first follow up buy, you should be able to move the
stop to breakeven. Otherwise don’t add to your position.

8
✔ Make sure the stock has enough room to correct or consoli-
date when you do a follow up buy. Ideally the new average
entry price is below your trailing stop (f.e. EMA 65).

✔ Only add to your position on days with above average

volume. There should be a demand for the stock.

✔ Don’t add to your position if the general stock market is in a

correction.

9
 Lesson #2

Look for mid term

patterns to capture
big moves

For several years I repeated the same mistake over and over
again: Trading short term chart patterns with a mid term trad-
ing approach. I bought breakouts of a 3 week consolidation
and expect, that the price will go up 100% in a few months.
That can happen, but is not very likely. A lot of trades ran
quickly a few percent, pulled back and I got stopped out. My
trading strategy and stock selection was not in synch!

I n the first years of your trading career you have find out
which type of trader you are. At that time it’s more a ques-
tion of personality, experience and compromise: Are you com-
fortable to trade short term moves (days to weeks) and collect
little gains over and over again or are you trading home run
trades (weeks to months) and collect big gains a few times per
year? No strategy is perfect and short term strategies are not
automatically better as mid term strategies.

10
Shopify ($SHOP): After 4.5 months of consolidation, the stock shot up 160%. That's the kind of
medium term pattern you should look out for.

I learned an important lesson: Every part of your trading

system must fit to each other. Otherwise your trading doesn’t
run smoothly. It’s like a machine where some components
falter.

If you are trading mid term moves - as I do - you have to make

sure, that the stocks you select are able to produce mid term
trends. It doesn’t help, if you buy an momentum stock, which
goes up 30% in a few days and give back all the profits, because
you are using a wide trailing stop and expect a smooth trend
which last a few weeks to months.

11
As a mid term traders, look for at least 6 week consolidation
patterns. The trend will last longer and you have the chance to
capture big moves with trailing stops.

If you are a short term trader instead, look for 3 week consoli-
dations after a sharp move. There is no right or wrong
approach, only an approach which works for you.

Learnings

✔ Make sure the stock selection criteria fit to your trading

rules.

✔ If you want to profit from big trends (>50% in a few months),

you must select stocks which are able to produce such
trends.

✔ Select the right trailing stop to secure profits. Mid term

trader need a mid term trailing stop like 50 or EMA 65.

12
 Lesson #3

Always sell shares

after a return below
the breakout level

I bought a lot of breakouts in my trading career and I held on

to a lot of failed breakouts after the price returned below the
breakout line. Instead of cutting losses quickly, I let the losses
become bigger as necessary. I always hoped that the price will
turn around, but it rarely did.

B ig winning trades almost do what I expect: They breakout

with high volume and immediately move into my pre-
ferred direction. There is rarely an exception. If a trade is not
doing what you expect, there is something wrong with the
trade.

A successful breakout trade should never return below the

breakout level. Yes, there is sometimes a retest or a small
undercut (max. 3%) of the breakout level, but the price should
always rebound quickly.

13
MongoDB ($MDB): The stock broke out after a 2 months consolidation. Sell at least 50% of your
position if the price returns below the breakout level to reduce the risk.

Today I am an aggressive seller if the stock is going to close

below the breakout level. Sometimes I sell up to 30% of my
stock position during the trading session to reduce risk, some-
times I wait until the last minutes of the trading session. Then
I reduce my position by at least 50%. If I am wrong and the
trade quickly rebound and breakout again, I can buy back any-
time at the same entry price as the first trade.

If you are not able to watch the prices of your portfolio posi-
tions through the day, you can place two stop loss orders. The
first one you place 3% below the breakout level and the second
at your initial stop loss level.

14
The goal with this technique is to reduce the average loss in
your trading statistic. If you sum up all your losses and divide
it by the number of trades, you get your average loss. The
smaller the average loss, the better is the expectancy of your
trading system. Additionally it reduces draw downs. Risk man-
agement comes first, then profits!

Learnings

✔ Sell 50% of your position if the price is going to close below

the breakout level.

✔ Do it by placing stop loss orders or manually.

✔ Rebounds are very rare. Go through 100 charts and do a

backtest if your are not convinced.

✔ Be very disciplined to cut losses quickly and keep them

small. It will improve the expectancy of your trading system

15
 Lesson #4

Never sell for a

profit because of
feelings, only
technical rules

I often sold a big winner because of feelings. Sometimes I „felt“

that the end of the trend was near or that the stock market will
correct and drag the stock down. In almost every case my pre-
diction was wrong! Instead of making profits, the rally took
place without me. A very frustrating situation.

I am good at stock selection. I always was and that’s why the

upper described situation was so frustrating.

I personally trade stocks that are able to outperform and lead

the stock market if the right market environment is given. They
produce lasting trends for months and a few of them go up
100% or more.

16
If you are able to find such trading candidates over and over
again, you need the right selling rules to capture a big chunk of
the profits. It’s not possible to sell at the top, but it’s possible to
sell if the trend changes the direction.

Today I have multiple technical selling rules and it’s not neces-
sary to predict anything. In the past I missed some big profits,
today I let the profits run until a rule is met and a technical
reason for selling is given.

Here are some of the selling rules I use:

■ Normal: Sell 100% of the trading position, if the price broke

the low of the bar which closed below the 65 daily exponen-
tial moving average.

■ Fast momentum: Take 50% of the profits after a close below

the 21 daily exponential moving average, if the price stayed
above it for at least 7 weeks. Such a stock moves up very
quick.

■ Exhaustion: Consider taking 50% of the profits when the

price is more than 70% above the 200 exponential moving
average.

17
Innovative Industrial Properties ($IIPR): The stock was exhausted and the price was more than
100% above the 200 exponential moving average. In this situation, take at least 50% of your profits.
Sell the remaining position after the price has fallen below the 65 exponential moving average.

Nvidia Corp (NVDA): If the price remains at least 7 weeks above the 21 exponential moving average
and corrections find support here, use this as a trailing stop.

18
 Learnings

✔ You can be the best stock picker, but destroy your trading
edge with a bad exit strategy.

✔ Don’t trust your feelings if you have a profitable trade.

✔ You are not able to sell at the exact top and you don’t want
to do this. You want to follow the trend until it turns around.

✔ There is no perfect exit strategy. Accept that! Look at your

trading statistics over a series of more than 100 trades and
find the exit strategy which leads to maximum profits.

✔ Be very patient with big winning trades. Often the trend last
longer as you think.

✔ Have multiple selling strategies to maximize profits: Normal

trailing stop, fast momentum and exhaustion.

19
 Lesson #5

Hold a position
above a rising
EMA 21 and ignore
one day breakdowns

I learned it the hard way to let profits run and hold on to win-
ning stocks. There have been so much stocks that went up after
I sold them. I sold them even though they were above the 8 and
21 daily exponential moving averages. Both are short to mid
term moving averages and show clearly that the trend is abso-
lutely intact. Had I held on to my big winners, I would have
made much more profit.

T he 21 daily exponential moving average (EMA 21 ) is a mid

term indicator for me. As long as the EMA 21 is rising and
the price is above, there is no reason to sell. If you respect that
rule, it’s easy to let profits run and capture a big profit.

There is one important detail what you should keep in mind:

The slop of the EMA 21 must be up. The rule above is not valid

20
Paycom ($PAYC): If you want to maximize your profits, you must ignore one day breakdowns below
a moving average.

if the EMA 21 is going down or sideways. That’s very important,

because you only want to hold as long as possible to the stock
if it’s going up.

Sometimes you see a one day violation of the EMA 21. The
price closed below the EMA for one day and shake out a lot of
traders. Don’t be one of those traders. The next day the price
returns above the rising EMA 21 and the rally continues.
Because of this, ignore one day shakeouts below the EMA 21.
If the EMA 21 is violated and the price closed below it, place
your stop loss order below the low of the day. If the price con-
tinues to break down, you get stopped out, if the price returns
above the EMA 21, you profit from the next rally.

21
I personally apply the same rules on the EMA 65, which I use as
long term indicator and trailing stop. The price dictates me if I
should use the EMA 21 or EMA 65. If the price held above the
EMA 21 for at least 7 weeks and corrections found support
here, I will sell at least 50% of my trading position after a true
violation.

Learnings

✔ Don’t sell winners too soon! Hold the stock, if the price is
above a rising EMA 21.

✔ Important: The EMA 21 must rise! As soon as it flattens out,

be cautious.

✔ Ignore one day violations and place a stop loss order below
the low of the violation day.

✔ Observe the behavior: If the price stays above the EMA 21

for at least 7 weeks and pullbacks get rejected here, use this
line as trailing stop.

22
 Lesson #6

Hold your winners as

long as possible. The
weekly chart is your
friend!

A long time in my trading career I wanted to make short term

profits as quick as possible. In the end this led to bad results.
The profits have been much smaller and were not able to pay
for all the small losses a breakout trader normally has.

Some day I caught a really big winner that wiped out a bunch
of small losses in one go and even a profit was left. That was
an eye-opener for me and I started to concentrate on home-
run trades.

A problem to held on to home-run trades was the daily price

fluctuations. Many stocks I traded had a correction at the
beginning of the week and recovered at the end of the week. Of
course I sold the stock early in the week and missed a re-entry.

23
W eekly charts can help you to tune out the noise. They
reduce the information to a very important detail: The
weekly close! This is important because you can see if there
was profit taking or a strong close at the end of the week. This
could be a sign that other traders are expecting higher prices.

If you are not sure whether to hold or sell a stock, look at the
weekly chart. Especially on Friday, this is the chart you must
look at. As long as the closing price is strong and in the upper
half of the week, you should keep the stock. If the closing price
is weak, you can think about profit taking, especially if the stock
has rallied in the recent weeks.

Applied Optoelectronics ($AAOI): The weekly 13 weekly exponential moving average was the
dominant support. In addition, you can see the tight consolidations around the moving average. A
great situation to add to your position if the trend continues and the stock breaks out of such tight
consolidation.

24
I use the EMA 13 in the weekly chart. The price must be above
it and pullbacks must be rejected here. If the EMA 13 is rising
and the price is above it, consider to keep the stock. Often
trends last longer as you think and you should do everything
to let your biggest winners grow.

Additionally I look for tight consolidations in the weekly chart

about a few weeks. If the stock can continue its rally, that’s a
great time to add to your trading positions.

Because I do the most of my trading homework at the week-

end, weekly charts play an important role in my trading. I
remove all stocks from my watchlists where the price closed
below the weekly EMA 13. In addition I add stocks to my watch-
list which showed a high above average volume in the last
week. An increase of more than 300% of the average volume of
the last 10 weeks is a signs that’s something going on with the
stock.

25
 Learnings

✔ Weekly charts help you to tune out the noise of daily price
fluctuations.

✔ Consider to hold a stock through a correction at the begin-

ning of the week to see if it can close strong at the end of the
week.

✔ The closing price on Friday is the most important price. Look

at it and decide if you should keep the stock or take some
profits.

✔ Use the EMA 13 in the weekly chart. As long as it’s rising and
the price is above it, keep the stock.

✔ Weekly volume is a good indicator for big demand or

supply. Add those stocks to your watchlist and investigate
what’s moving the stock.

26
 Lesson #7

Let profits run to

make a difference in
good times.

There was one moment in my trading career that changed

completely my thinking: The moment I had my first real big
winner. That trade wiped out a large number of small losses
and left a big profit.

If you are in a draw down and realize loss after loss, you can’t
believe that one big winner can change everything. But a trade
with a return of 20 times your initial risk can wipe out more
than 20 losers in a row.

Such a trade isn’t luck, it’s the result of discipline and patience.
It’s the reward of following your rules!

I f you hit for home runs in trading, you must do everything

to let profits run. I am serious about that! Never sell a big
winner as long as no technical sell rule is met. Trends last much

27
longer as you think and stocks can go up while the general
stock market is falling.

If you have a few stocks in your portfolio which go up 100% in

a few months, you can achieve a great performance in that
year. Here is an example: 60% of your capital is in 4 stocks with
each 15% of your total capital. If they go up 100%, you will have
60% return on your total capital. If you cut your biggest win-
ners instead, the performance will be marginal.

Square ($SQ): This stock rose 450% in just under two years. You do not have to capture the entire
trend, but parts of it. The first move was the strongest with 171% and the second was 70%. The
trends lasted for several months, giving you the opportunity to increase your position to maximize
profits.

28
One big winner can wipe out several small losses and left a
large profit. Here is an example: A big winning stock can return
20 times or more of the initial risk (which is 1R). I call that a 20R
winner (20 x initial 1R). Usually not all your losers will be a full
1R loss. If you limit your losses strictly, you will have an average
loss of around 0.5R. Now do the math: A 20R winner can wipe
out 40 average losers of 0.5R! Or it can wipe out 20 average
losers of 0.5R and left a 10R profit. That’s why you should make
sure you win big.

Letting profits run requires to let go of the trade. You check

your trading position every day, but don’t do anything until a
sell rules is fulfilled. Leave it to the market to decide when it’s
time to take profits. A trailing stop loss can help you with that.

This rule is hard to learn, because you must change your mind-
set to understand the importance of big winners. Make a bet
with yourself: Let profits run according to your rules. Check the
results after 6 months and I am sure that you will stick to that
rule.

29
 Learnings

✔ Big winning trades can wipe out a lot of small losses at once
and left a profit.

✔ Do everything to let your profits run in market with good

conditions.

✔ Try to catch winning trades with a return of 5, 10 or 20 times

the initial risk. Pyramiding your winning positions will help
you with that.

✔ Limit your losses strictly and try to achieve a small average

loss in your trading statistics. Then big winners have a big
effect.

✔ Change and train your mindset to let go of trades. The

market will tell you when it’s time to take profits.

✔ Trailing stop techniques help you to maximize your profits.

30
 Lesson #8

Position sizes must

be dynamic

When I started trading, I was very focused on fees. I didn’t

trade in and out of a stock very often, because the fees
summed up. But the fees itself weren’t the problem. The prob-
lem was that my trading capital was too small.

Because of this focus on fees, I didn’t considered varying my

position size. This would have helped me to decrease losses
and increase profits.

O ne of the biggest weapons of a trader is position sizing.

This will help you to reduce draw downs and increase
your profits. The trading fees are so low today, that they can be
neglected. If fees have an impact on your trading, check if your
trading capital is large enough.

View the positions size as dynamic and not fixed. Instead

increase or decrease it on success or failure. There is nothing
wrong to sell ⅓ or ½ of your trading position, if it’s showing a

31
loss. Do the opposite on winning trades: Buy an additional ½
or ⅓ on the way up.

There are two goals: 1. cut losses quicker and smarter, 2.

increase profits in home-run trades. But make sure you have
specific rules which are repeatable. Consistency is the key to
have repeatable results.

There are a few tactics I find helpful:

■ Scale into a new trade: You can buy ⅓ at the entry, ⅓ after
the stock moved 2% in your direction and the rest after
another 2%. If the trade fails quickly, you reduced your loss.

■ Sell ½ if the price drops below the breakout level.

■ Sell ⅓ or ½ on the half distance to your initial stop loss.

■ Add another ½ position to your trade if it shows you at least

a 20% profit and created a new base. Then you can add ¼
position on another base.

I often trade around a core trading position in a stock. My initial

position will be 7.5-15% of my capital and if the trade goes into
my favored direction, I will increase it on the way up. On fur-
ther trading bases, I add to my position until 25% or more of
my capital is in that trade. I will reduce the position as soon as
sell rules are fulfilled.

32
Sometimes my position is smaller, sometimes bigger. That’s
my understanding of a dynamic position size mindset.

Learnings

✔ Broker fees can be neglected today. Don’t use this as an

excuse to buy and sell your whole position at once.

✔ Have repeatable rules to increase or decrease your trading

position.

✔ You don’t have to buy your initial trading position at once.

Try to buy in small steps to reduce the losses on failed
breakouts.

✔ View your trading position as a percentage of your trading

capital. If the position goes into your favored direction, you
add to your winning position and have more capital
invested. If it goes into the opposite direction, you reduce
the risk by decreasing the position size.

✔ Work on your mindset to see position sizes as dynamic.

✔ It’s much easier to increase or decrease an existing small

position instead of buying a big position at once.

✔ Never increase the risk if you add to your position!

33
 Lesson #9

Have multiple exit

strategies.

In the past, I only had two exit strategies: loss or profit. In hind-
sight this thinking was too short. There are many wasy to exit a
position and a combination of them increase the flexibility. In
addition it helps to reduce losses and maximize profits.

T he exit is much more important as many traders think,

because at that point you decide if you sell for a loss, profit
or break even. You as a trader have control over the exit which
gives you an advantage.

Combining multiple exit strategies in your trading approach

helps to reduce draw downs and losses. Additionally it helps to
maximize profits. Here are some types of exits you should con-
sider to combine:

1. Initial stop loss: Protection against big losses.

2. Trailing stop: Protecting profits and let them grow.

34
Roku ($ROKU): Initial stop loss to protect your capital, exhaustion exit to protection against deep
draw downs, trailing stop to protect profits.

3. Take profit: Reducing your position size and bank some

profits.

4. Time stop: Sell if the trade moves sideways and you can
invest your capital in better opportunities.

5. Breakeven: Moving your stop loss to your entry price after

you reached a certain profit level.

Multiple exit strategies must be part of your trading rules. They

must be repeatable at any time and without a doubt.

35
Often traders are so enmeshed with current single trade, that
they forget the long term view. It’s not important if you maxi-
mize your profits at one trade, it’s important that you maximize
it over a series of e.g. 100 trades. The outcome of a single trade
is not predictable, but the outcome over 100 trades is.

Think about the combination of dynamic position sizes and

multiple exit strategies. If you manage your trading position in
that way, you have great tools to reduce draw downs and max-
imize profits.

I personally use all of the exit strategies above. My initial stop

loss is at maximum 7% and I use the EMA 65 or 21 as a trailing
stop. I will take profits if the price is >70% above the weekly
EMA 40 and I will move my stop loss to breakeven after I have
a profit of 20%. Time stops are more difficult to use. I made the
experience that I was stopped out more often by the initial
stop before the time stop was hit. But if a trade goes sideways
for multiple weeks after the entry, I will definitely sell the posi-
tion and re-enter on a new breakout.

36
 Learnings

✔ Use the full range of trading tools: Having multiple exit

strategies is an advantage.

✔ Apply multiple exit strategies to reduce losses and maxi-

mize profits.

✔ Don’t get so enmeshed with the current single trade. It’s not
important in the long-run.

✔ Optimize your exit strategies over a long series of trades

and optimize the outcome of your whole trading strategy.

✔ Work on your mindset to achieve a long term perspective on

your trading and think about the impact of optimizing your
exit strategy.

37
 Lesson #10

Look at your equity

curve and see how
you perform.

I never looked at my portfolio equity curve as a beginner. I saw

no value in it and it was going down. That was frustrating.

If I had looked at my equity curve, I would have found a lot of

valuable information. Besides it would have given me great
feedback to improve my trading.

C harting your own equity curve is like looking into a mirror.

It directly reflects you, how you perform as a trader. This
is valuable information to improve or adjust your trading strat-
egy.

Examples of equity curve behavior:

■ Volatile and sideways: Something with your trading is

wrong. You should better stay in cash or reduce position
sizes.

38
■ Moving down in a steady trend: You should stop trading.
The strategy is not working at the moment or all of your
trading positions are in a correction.

■ Moving up in a smooth and steady trend: You are doing

great. Maybe you should be more aggressive.

You can apply rules on your equity curve to manage draw

downs and volatility or taking profits. For example you can
close positions partially if your equity curve drops below the
moving average 20 or 50.

I personally use my equity curve only as a mirror how my trad-

ing strategy works in the current market situation. If it’s going
sideways for some weeks, I start to analyze the situation. Often

Example of a equity curve: It rises steadily, shows setbacks and a slight volatility. The moving
averages help to reduce the noise.

39
the reason is sloppy trading and not following my rules with
precision. That’s valuable information that help me to get back
on track.

Use this powerful tool to monitor and improve your trading

over time. The information you get here is very helpful and can
lead to new improvements of your trading strategy. You can
link this information to your trading journal and find correla-
tions.

Learnings

✔ Chart you equity curve with a simple spread sheet.

✔ Write down your cash balance, invested capital, open profits

or losses, open risk and calculate a 20 or 50 moving average.

✔ Update the numbers every day to chart your equity curve

over time.

✔ Analyze the equity curve regularly and look for patterns.

✔ Think about the introduction of rules to decrease volatility

and maximize profits.

40
 Lesson #11

Relative strength is
more important
than fundamentals.

I made the experience that there are two types of stocks:

1. Outstanding fundamentals (sales and EPS) are avail-

able and everyone expect better numbers in future.
2. Fundamentals are not outstanding yet and everyone
expect an improvement soon.

The second group is very hard to trade, because you must build
confidence on relative strength alone. But it’s worth that!

S ome stocks show a high relative strength, break out with

huge volume and have a big rally before everyone knows
the reason for the move. Make sure you don’t miss those type
of stocks.

I have both kind of stocks on my watchlist. To measure relative

strength, I use the Investor Business Daily Relative Strength

41
Rating (IBD RS). This is available in all subscriptions of IBD
products.

I add stocks with a 99 relative strength rating to my watchlist

and observe them closely. If the relative strength continues
and I see a valid chart pattern, I often buy a starter position. As
soon as I get more confident in that stocks, I increase my posi-
tion size.

It’s important that the stock has an interesting background

story and news which serve as a catalyst for the price move.

Enphase ($ENPH): Before the breakout, the fundamentals showed a strong increase in EPS growth,
but sales growth was slow. Only the relative strength was excellent. During the rally, sales growth
increased and peaked near the top of the rally.

42
 Learnings

✔ Make sure you have relative strength leaders on your

watchlist too.

✔ Don’t buy blindly stocks with a high relative strength. A rela-

tive strength leader shows extreme price strength. Often
the price is up 100% or more before you consider to buy.

✔ The reason for the strength is often revealed after the big
move. Pure speculation, insider knowledge and expecta-
tions are driving those stocks.

✔ The catalyst of the price move can be news, new application

for products or just a temporary fashion.

✔ Stick to your rules regarding chart patterns, strength,

volume etc. The only thing you ignore are fundamentals.

43
 Lesson #12

Stay in your niche

and trade with
discipline.

I think most traders know this: In the beginning of your career,

you trade everything. Stocks, Bonds, Futures, CFDs, Certificates,
different sectors/industries/styles … I did this and it was the
opposite of successful trading.

If you are dealing with everything, you never build up experi-

ence in one thing. You have a broad knowledge, but only spe-
cialists make money in trading. That’s why the most traders
need so much time to become profitable.

T oday I define myself as a specialist. I trade only in a very

small niche of the stock market and my stock selection cri-
teria help me to focus.

If you look at my stock screener, you will see that the criteria
point in one direction: Leading high potential growth stocks

44
with a high relative strength. That’s my personal niche I
observe it day in and out.

My screeners show up to 300 stocks and I have 20-30 on my

watchlists. That’s less than 1% of all available stocks in the USA!

You can define a niche for yourself. It can be growth, momen-

tum, value or a combination, but it must lead to a narrow selec-
tion of stocks which fits to your trading rules.

Being a specialist makes trading decisions easier. Often you

have a few setups on your watchlist and don’t have to watch
hundreds of stocks. It requires discipline and patience to wait
for the right stocks. Sometimes you have to stay out of the
market for weeks or months until your niche is back in favor.

Example of a screening result in FinViz. The screener found 281 stocks that met the criteria.

45
Don’t change the definition of your niche regularly. The stock
selection criteria of your niche must be in synch with your trad-
ing rules. Otherwise, it's like trying to use the wrong tools to
handle the wrong materials. That leads to bad results and frus-
tration.

Stick to your rules and stick to your niche. If you feel that you
need to change your rules or the niche, do it, but bring every-
thing back in sync.

Learnings

✔ Only specialists make money in the stock market! Become a

specialist in one niche.

✔ Narrow down the number of stocks you observe. That

makes trading decisions easiert and consistent.

✔ Make sure your stock selection criteria and trading rules fit
perfectly.

✔ Don’t change your niche or rules regularly. Your goal is to

build up experience!

✔ Trust your niche and rules, even if your niche is not currently
prefered by the stock market. Wait patiently until the situa-
tion has changed again.

46
 Lesson #13

Become an
execution pro!

As a trader with less experience, money is everything. It’s

understandable, because everyone starts trading to make
money. But to focus on money alone leads in the wrong direc-
tion. It takes the focus away from a topic which is more impor-
tant: Execution of your trading approach!

I t took many years until I changed my focus to execution

excellence of my trading process. That was a huge step for-
ward.

Before you can execute something, you need clear rules and
processes that are repeatable every day. One time you defined
those, it’s all about tracking mistakes, learning from them and
trying to optimize the execution over time.

Your focus must be on repeating every step of your trading

approach as best as possible. Make a commitment to stick to
your rules, track every violation and try out optimizations.

47
It’s not the trader which has luck who makes the most profits
over a long time, it’s the trader who sticks best to his process.
Consistency is the key!

I saw a lot of different track records from traders over time.

The trader with the most clear and repeatable process, gener-
ates the most profits and had the smoothest equity curves.
That’s why it must be your goal to become an execution pro
and strive for execution excellence.

Learnings

✔ Focus on consistently executing your trading approach.

✔ Money is always the outcome of a successful trading

process.

✔ It’s not your job as trader to make money, it’s your job to run
your process as best as possible! Money will follow.

✔ Have clear repeatable rules and processes. If another

person or an algorithm can run your core trading business
without you, you have reached your goal.

✔ Restrict discretionary elements to a minimum.

✔ Track violations of your rules and analyze them in detail.

Find new processes and rules to avoid another violation.

48
 Lesson #14

Look for young

companies with new
products, services
and high growth.

In the first years of my trading career I ignored fundamentals

and the background of a stock. I thought that analysis of
supply and demand was enough to find the best stocks in the
stock market.

After I did a lot of studies and applied to a mentor program, I

saw the value in fundamentals and potential analysis of a
stock. If you understand what drives the stock price, it’s much
easier to have confidence in a trade and ride big winners.

A fter analyzing a lot of past big winning stocks and their

fundamental background, I adjusted my stock selection
criteria. Today I prefer young stocks or companies which had
their IPO in the last 10 years. Often I trade stocks which had the

49
IPO in the last 2-5 years. Those young companies are often
growing at a fast pace.

The source of growth must be organic and come from prod-

ucts or services the company sells. If sales are growing by at
least 30% quarter by quarter over months or years, you can be
sure that the products/services are in high demand. If the com-
pany is able to convert these sales growth into profits now or
soon, a big increase in the stock price is very likely. The stocks
I trade often have sales growth rates of more than 50%.

Never trade on fundamentals alone. Make sure the stocks you

trade have excellent technicals. That’s more important than
fundamentals or a great story.

If a company has outstanding fundamentals, disrupting prod-

ucts and the stock price is still rising at a fast pace, it’s a sign
that the future growth is not priced in yet. A re-evaluation of
the company’s valuation is what you are looking for.

It takes experience and interest in economics and business to

asses the potential of a company. You must gain the needed
knowledge if you haven’t it yet. Look into the business world
with open eyes and a huge interest for business models, inno-
vation and economic changes. Always ask why things happen
and who benefits from it. That leads you in the right direction.
With the help of the internet, almost any information is only
one click away.

50
Shopify ($SHOP): The stock built a wonderful base after the IPO in 2015 and started a 280% rally.
The second rally was not so strong as the first one: Only 150%. Shopify has a revolutionary new
ecommerce platform for small and medium businesses and is growing very fast.

Tesla ($TSLA): After the IPO, the stock moved sideways for 2.5 years. Then it broke out and had its
first big rally: 380%. Tesla is the leading manufacturer of electric cars.

51
 Learnings

✔ Look for young companies which had their IPO in the last 10
years.

✔ Only add the best companies to your watchlist: Young, high

growth, big potential.

✔ Require that the company show a high organic growth from

their products or services. The higher the better.

✔ Analyze the background of the company and their offered

products. Are they able to disrupt an existing market and
create a high demand?

✔ Gain knowledge about economics and business to support

your trading decisions with that information.

✔ Technicals come first! Fundamentals and potentials are only

additional information. If the technicals are weak, avoid the
stock even though the fundamentals are strong.

52
 Lesson #15

Focus on strong
industries with
disrupting potential.

I've made the experience that often not a single stock starts off
alone, but a whole industry. Always when the stock market
came out of correction, one or a few industries led. Often those
industries had disruptive potential like computers, software,
biotech, medical devices and many more. Those industries con-
tained big winning stocks with new products, services and
huge growth.

If you focus on industries with disruptive potential, you will be

able to find some big winning stocks.

I personally use a bottom up approach. That means, that the

stocks, which come up in my stock screeners, lead me to
strong industries.

When I see that many stocks in my stock screener belong to

one industry, I start to get interested. I'm trying to find out

53
what the reason for the move is and whether all or just a few
stocks are moving. Then I will analyze these stocks in detail and
find the 1 or 2 leading stocks in the industry.

What are industries with disruptive potential? Such industries

contain a lot of companies with new products and services
which are able to replace established companies. Here are
some famous examples:

1. Video streaming replaced video rental.

2. Cloud software replaced application software.

3. Desktop computers replaced mainframe computers.

4. Airplanes replaced trains.

5. Smartphones replaced mobile phones.

In addition to the replacement of existing industries, com-

pletely new ones are created. These industries exist alongside
the established ones but gain market share. Here are some
examples: Biotech, crypto currencies, cannabis, internet ser-
vices, solar.

Don’t trade stocks in old established industries like banking,

railroad, insurance or utilities. These either don’t grow at all or

54
only very slowly and are not able to produce super stocks. If
you see a stock in such a industry delivers outstanding perfor-
mance, analyze it in detail. You will either see disruptive new
products or the stock actually don’t belong to this group.

Cloud software stocks were the leaders 2019. Most of them doubled from the breakout to the top.
Cloud software is more flexible and scalable and replaces the usual application software. These
companies are disrupting a 30 years old industry.

55
 Learnings

✔ Look for commonalities of stocks in your stock screener.

✔ Use a bottom up approach: Let the stocks guide you to the

leading industries.

✔ If multiple stocks from one industry appear in your stock

screener, the whole industry is on the move.

✔ Focus on new industries with companies which provide dis-

ruptive products or services.

✔ Try to find out what drives the industry.

✔ Every established industry will be replaced by a new indus-

try soon or later.

✔ Ignore stocks from old established industries. They are usu-

ally not able to produce outstanding performance.

56
 Lesson #16

Stock selection
criteria only have
one function.

I played around with stock screeners and stock selection crite-

ria for years. I thought that I need the secret formula to find
the next Apple or Amazon.

In the beginning I used only technical criteria, then only funda-

mentals and now I use both. But it was my mindset which was
wrong: Stock selection criteria can’t find the next Apple or
Amazon. That’s not predicable. But you can filter stock which
have a high chance to produce big trends.

T oday I focus on 3 groups of stocks and I created stock

selection criteria for them:

1. High growth in sales (>30%) and / or EPS (>50%) year over

year.

57
2. Outstanding relative strength (>95 Investor Business Daily
Relative Strength Rating).

3. Unusual volume (>150% of the 50 day average volume).

I went through hundreds of past big winning stocks and com-

pared their technical and fundamental criteria. All of them can
be sorted in those 3 groups above.

I know that I can find trading candidates in those groups, which

have the potential to make 100% moves in 6-9 months if the
market environment is conducive.

After the stock screener spits out a list of around 250 stocks, I
quickly sort out all stocks with a weak chart picture. I learned
over the years to asses the technical strength of a stock by
looking at the price and volume behavior. That takes a few
minutes by flipping through the pages. Then I start analyzing
the fundamentals and company background. In each screen-
ing routine, 2-5 stocks will be added to my watchlist. That’s less
then 1% of the stocks the screener showed to me and less then
0,01% of all available stocks.

My watchlist usually does not contain more than 40 names,

because I can’t find more stocks which meet my criteria.

58
Those 40 candidates are the ones I stalk and observer every
day. Maybe a few of them produce a valid setup where I open
a trading position and follow the trend.

Learnings

✔ Stock selection criteria are a filter for the best trading candi-
dates which have a high chance of producing big trends.

✔ Look for stocks with outstanding growth in sales and/or EPS,

relative strength and strong demand.

✔ Try to be very selective and only add the best stocks to your
watchlist.

✔ Be a stock stalker and look at your watchlist every day, so

that you don’t miss the entry.

59
 Lesson #17

Observe your
watchlist and spend
less time with the
indices.

I spent a lot of time trying to time the market perfectly with

help of the indices. But I found out that this is the totally wrong
approach. The indices have their own life, sometimes indepen-
dent of the leading stocks. You can use them to see if we are in
an up trending market or not. But don’t use them to time
your entries.

I personally call my watchlist „small niche“. The watchlist con-

tains stocks which fully meet my criteria and represent a
very small selection of the entire US stock market. Remember:
In best of times, I only have 40 names on the watchlist. The
entire US stock market consists of around 7500 names. That
means I only have 0.5% of all US stock on my watchlist.

60
Instead of watching the indices and using them for the timing,
I use my watchlist:

■ When many stocks on my watchlist break out of solid chart

patterns at the same time, it’s time to open new positions.

■ If they are volatile and show no valid chart patterns, I stay in

cash and wait for better times.

■ If I see that many stocks on my watchlist are in the red and

breaking down, this is a sign to be more cautious and selec-
tive.

■ As the number of stocks on my watchlist increases, I see

that my niche is in the favor of market participants.

■ If the number of stocks decreases, it is not favorable for me

to be active on the stock market.

■ If many names on my watchlist belong to an industry or a

sector, this is a sign for me that this industry is on the move.

You see that observing the watchlist will help you much more
than analyzing the indices. Remember: You are not trading the
indices, you are trading single stocks.

61
 Learnings

✔ Do not use the indices to time your entries. Use them only
to see if the general stock market is in an uptrend or not.

✔ Your watchlist represents your personal niche in the stock

market. Treat it like your „own index“.

✔ Observe your watchlist every day and study the behavior of

the stocks included.

✔ Be very consistent in selecting your stocks to always have

the same type of stocks on your watch list.

✔ Use your watchlist to time your entries.

62
 Lesson #18

Volume is the blood

of the stock market.
Only buy stocks with
high blood pressure.

For years, I ignored the volume analysis and thought the price
was enough to make a decision. That was a mistake.

The volume speaks to you as well as the price. I've learned that
from other traders and through post-analysis of past
successful trades.

Stocks that burst out of excellent bases with a lot of volume

signal a significant change in the perception of market partici-
pants. In this situation, a lot of money flows into the stock and
absorbs the available supply.

T he behavior of volume is important for me. I analyze it in

weekly and daily charts of all stocks on my watchlist.

63
On the weekly charts I want to see a sharp increase in volume,
which goes hand in hand with a sharp rise in the price. A
weekly volume of at least 150% of the average volume of 10
weeks is a minimum. Often the big rallies start with a jump of
>300% over the weekly average volume.

The same is true for daily charts. When I buy a breakout, I want
to see at least 150% of the average volume of 50 days. The
more volume and price increase, the more confident I am with
the stock.

Canopy Growth ($CGC): The volume exploded to an 8-month high at 500% of the average 50-day
volume. A clear sign of massive demand. If you look for such volume explosions, you will find big
winning stocks.

64
I also use the volume to see when it's time to reduce a position.
If you see an outstanding high-volume day after a rally lasting
several months, it may be time to take partial profits. The same
applies if you notice a strong reversal at high volume. These
are classic signs of exhaustion.

If you see low-volume breakouts or rallies, you should be very

skeptical about these stocks. Low volume signals low demand
and just the opposite of what you want to see.

Learnings

✔ Analyze the volume with the same thoroughness with which

you analyze the price.

✔ Learn how to read the different volume patterns: high

volume on strong days, low volume on breakouts, high
volume on reversals, and more.

✔ Add volume requirements to your setups to buy only the

strongest stocks.

✔ Watch out for strong volume increases in the weekly and

daily charts. This is a sign of strong demand. Institutions can
not hide their actions on the stock market.

65
 Lesson #19

Be very selective:
Have only the best
stocks on your
watchlist.

I can remember times when I had 5 or more watchlists with a

total of 150 or more stocks. It is very difficult to decide which
trade you want to take when 35 stocks break out at the same
time. The odds are high that you will not pick the big winner.

Quality and selectivity are the key to successful trading. You

want to increase the chances of finding a big winning stock.
Since big winning stocks are rare, you need to raise the bar for
stocks on your watchlist and use selection criteria that have
produced big winners in the past.

I 'm very picky about stocks I trade or put on my watchlist. My

goal is to have only the best stocks on my watchlist: funda-
mental and technical.

66
This means that I ignore most stocks in my screeners. Less
than 1% of the stocks of the entire US stock market are on my
watch list. I have no urgency to act until I have found a really
big potential winner.

I have a multi-step process to reduce the number of trade can-

didates. My screeners reduce the number of approximately
7,000 stocks to approximately 250. Then I select the best
stocks manually and analyze the technicals, fundamentals and
the background of the company. This process is based on
research and experience. I have confidence in the process that
it can regularly find big winning stocks.

You see, this process has a lot to do with specialization. As you

have read before, I trade in a very small niche on the stock
market. My process ensures that I only have stocks from this
niche on my watchlist.

Do not settle for a mediocre stocks. You have the opportunity

to select only the best stocks if you put a little effort into the
selection process. In trading mediocre processes and stocks do
not work. You can only make money through selectivity and
quality.

67
 Learnings

✔ Quality over quantity! Avoid over-trading and confusion at

all costs.

✔ Be very picky and have high quality standards.

✔ Add only the best stocks to your watchlist: technical and

fundamental.

✔ Make sure your stock selection process helps you find great
winning stocks.

✔ Test your selection process to see if it has found great win-

ning stocks in the past to gain confidence in it.

✔ If you closely monitor more than 50 names at the same

time, your selection criteria are not specific enough.

68
 Lesson #20

Don’t look for trades,

let the trades find
you.

If you have the urge to find a trade, not to miss a possible

move, step back and tell yourself: There is something wrong! I
have often had this feeling in the past and sometimes today. I
spent hours looking through stock lists to see if I can find a
stock I can trade. The result: wasted time, poor results and
frustration. I have learned to control my emotions.

Potential big winning stocks will find you. There is a small

window of opportunity when they scream in your direction:
Here I am! If you have the right criteria for stock selection and
the right mindset, you will listen and not be distracted from the
other thousands of opportunities.

69
I have found two solutions to what is called FOMO (fear of
missing out):

1. Use stock screeners and have a clear process to find trading

candidates.

2. Ignore the indices as much as possible.

A stock screener helps you that you don't have to search for
trades. Instead, a stock screener brings the trades to you and
you just have to select.

The indices are often a source of pressure. While e.g. the S&P
500 moved 5% in a month, your portfolio went down 3%. Now
you ask yourself: Do I have the right stocks? But that’s the
wrong question. If you want to have the same results as the
S&P 500, you should buy an ETF. If you want different results,
you have to do things differently. The indices will not help you
to become a better trader, they only give you clues if it’s the
right time to trade stocks or to be in cash. A lot of traders
would have been better results without looking at the indices.

70
 Learnings

✔ If you catch yourself looking for stocks for hours, stop

immediately. It’s wasted time!

✔ Rely on your stock selection process: When the right time

comes, the potential big winning stocks will find you.

✔ Ignore the indices as much as possible. They will only put

pressure on you.

✔ Remember: if you want to achieve results different from

those of the indexes, you have to do things differently. Oth-
erwise, you can buy an ETF.

71
 Lesson #21

It’s an advantage to
be in cash.

I never felt comfortable being in cash and having no open posi-

tions. I always thought: When I'm in cash, I can not make a
profit. I am a trader and must trade! But that's not the right
attitude.

Cash is an advantage you have over all traders who are unable
to stay on the sidelines: fund managers, newbies, and traders
looking for action.

If you're in cash, you tell the market: I'll only trade if you give
me better opportunities.

I worked on my mindset and today I achieved the necessary

level of calmness. The more I focus on my process and
ignore everything else, the easier it gets.

A cash position is something that builds up naturally if you can

not find attractive trades or get stopped out of trading posi-

72
tions. It's rare that the stock market itself or my equity curve
forces me to switch to cash.

You only want to risk your precious capital when the odds are
high enough to make money. In the remaining time you should
protect your capital and outperform the general stock market
by doing nothing. The only thing stopping you is your urge to
trade. That's why it's so important to work on your mindset.

Learnings

✔ There are three possible trading directions: Long, short and

cash.

✔ You decide when you risk your precious capital.

✔ Work on your mindset to reduce the urge to trade. Nobody

forces you - only you force yourself.

✔ Many market participants are unable to switch to cash com-

pletely. Use it as an advantage that you can do it.

✔ You can outperform the general stock market by being in

cash in bad times and doing nothing.

73
 Lesson #22

Sell into the strength

to hold your equity
curve close to the
high.

I love to trade momentum stocks, especially if they go up 50-

100% in a few weeks. These stocks often make parabolic moves
at the end of their trend. I use trailing stops to secure my
profits and these usually react slowly. That's why I always gave
back a lot of profits after a parabolic exhaustion rally. This was
very frustrating and had resulted in large drops in my equity
curve in the past. That's why I've developed sell rules for this
situation.

Y ou have to sell into the strength, if you come across a

really big winner. There is no other way to protect the
huge profits you have made through an exhaustion rally.

I included a rule in my trading: If a stock is 70% above its daily

exponential moving average 200 (or weekly EMA 40), I'll sell at

74
least 50% into the strength. This rule has helped me a lot to
protect the profits of big winners.

Of course, there is a risk that the trade will make only a small
pullback and start another rally, but over a long series of
trades, this strategy helps to secure profits.

Should you blindly sell 50% of your trading position? No. You
should wait for signs of reversal or exhaustion before you start
selling. Remember: your goal is to maximize your profits. To do
this, you must stop selling too soon.

Example Carvana ($CVNA): If the price is more than 70% above the exponential moving average
200, it’s a good time to take partial profits on reversal bars.

75
 Learnings

✔ When a stock gains momentum and is far from its daily

exponential moving average 200, you should think about
selling into the strength.

✔ Trailing stops are too slow to protect the profits of a fast-

moving stock.

✔ The goal of selling into the strength is to avoid big drops in

the equity curve. It’s a tool of risk management.

✔ Learn how to recognize signs of exhaustion in order to time

your selling.

76
 Lesson #23

Trade only if you

have an edge and
ignore the rest of the
time.

It's simple: If you want to destroy your capital, trade aggres-

sively in times when you have no edge! This is the fastest way
to burn capital. I have experienced it many times. During these
times I even intensified my trading.

E very trader needs to know his trading approach. If you do

not know when you have an edge in a particular market,
stop trading and start researching.

It is normal for your edge to disappear from time to time. Here

is an example: I am a stock trader and trade growth stocks. If
growth stocks are not in demand, I have no edge. The same
applies if the general stock market is not in an uptrend. In such
a situation, I will have no edge in buying breakouts and expect
the development of a long-lasting trend.

77
A problem for beginners is that there are too many opportuni-
ties in every market phase. Even in bear markets you can find
some stocks that break out of chart patterns to the upside.
What they do not see is that these are the lonely survivors and
most breakouts fail.

The fear of missing out (FOMO) is a danger for every trader. If

you don't have enough confidence in your trading approach
and trading rules, it will be difficult for you to stop trading and
wait patiently. That is why it is so important to work on your
mindset and self-confidence.

In a market environment in which you have no edge, your hit

rate drops dramatically. If you normally have a hit rate of e.g.
40%, it decreases in a bad market phase to e.g. only 10%. Also,
your average profit drops dramatically and your average loss
goes up. If you do not stop trading, you will lose money even
on a small number of trades. It's like sitting in a hole and dig-
ging deeper.

Being on the sidelines and waiting for your edge to come back
is a normal trading situation. You have to accept that. If you
want action all the time, go to a casino and pay instead of get-
ting payed.

78
 Learnings

✔ Stop trading if you have no edge.

✔ If you keep trading, you lose money very quickly.

✔ In times when you have no edge, the statistics of your trad-

ing turn around and your strategy is not profitable.

✔ Do enough research to find out when you have an edge with

your strategy.

✔ Implement rules to stay on the sideline in a bad market

environment.

✔ Work on your mindset to avoid fear of missing out (FOMO).

79
 Lesson #24

Accept every detail

of your trading
approach.

It is very difficult to find a trading approach that fits your per-

sonality, strengths and circumstances. I was looking for years
and tried different trading styles. I had problems with every-
thing.

I did not accept making multiple losses in a row, giving back

profits, missing opportunities, selling too soon, trading small
positions ... Each trading approach had its own trade-offs.
There is no perfect trading system or approach that fits all your
personal preferences and strengths.

T oday I think differently about this: I do not have to find a

personal approach for myself, but I have to accept all con-
ditions of my trading approach to achieve the desired result
and make money.

80
Here's an example: I always thought I needed to find the right
holding time for my trades or the best exit method. No! What I
had to find was the acceptance of the required holding time
and the required exit method to generate the inherent expec-
tation value of my trading approach! Trading is not about satis-
fying personal needs, but doing everything possible to bring
the inherent expectation value of your trading approach to life.

What helped me the most to accept every detail of my trading

approach was backtesting. I went through my trading journal
several times to see what the result would be if I followed my
rules correctly. That was a big aha moment for me.

You must do everything to have confidence in your trading

approach. When you have achieved that, you will accept every
detail of the trading approach. You will accept that you are not
selling at the exact high or buying at exact low. You will accept
that you have several losses in a row, and you will accept that
you have to stay away from the market from time to time. You
do all this to realize the inherent expectation of your strategy.

You do not have to focus on every trade or every detail when

executing your trading strategy. Instead, focus on the long-
term outcome. You do not have to say, "Oh, why did not I sold
at the high yesterday?" Instead, you say, "Ok, I have to let the
profits run until a rule is met to sell, otherwise I will not reach
the long-term result.“

81
Of course, you can include your personal strengths and prefer-
ences in your trading approach. For example, I love finding
interesting companies and stocks. This helps me to improve
my stock selection. But this is not the inherent edge of my trad-
ing approach. If I removed that part, I would still make money
in the long run.

Learnings

✔ Do not use the search for a personal trading approach as an

excuse not to accept the conditions of a trading approach.

✔ Focus on the long-term, not on the short-term results.

✔ Know the expectation value and the edge of the approach.

This helps to understand what you need to achieve.

✔ Do not try to adjust the trading approach to your personal

preferences, circumstances and strengths. This changes the
inherent expectation valuev and often leads to poor results.

✔ Make sure you can execute a trading approach without

using your personal strengths. The results may be worse,
but you know the approach is robust enough.

✔ When you create your own approach, make sure that you
have backtested it and it has a positive expectation value.

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 Lesson #25

Ignore trades where

you can’t build a
rewarding position.

This is a lesson I learned late in my trading career. Until then, I

have traded every possible position size. I had no problem
trading one aggressive 3% position in a biotech stock and
another 30% position in a normal stock. But guess where I
made the most money: definitely not in aggressive positions
with a small position size. It were the normal and more conser-
vative stocks with larger-sized positions with which I made the
most money.

M any traders are fascinated by big moves: 300% in a

week, 500% in a month and so on. However, these types
of moves often occur in aggressive, volatile stocks with low
volume and small market capitalization. It's not uncommon for
your initial stop loss to be 20% off your entry price. This leads
to small position sizes. Plus, you can not add to your position
without dramatically increasing your risk.

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Here's an example: You have bought a 5% position in an
aggressive biotech stock. The stock rose 200% in 4 weeks. The
return was 10% of your total trading capital. Not bad, if you
only look at time and results. If you look at the chance-risk
ratio, you will discover something else. If this position had a
20% stop-loss distance and you risked 1% of your total capital,
the chance / risk ratio would be 10. Still great, but to achieve
this return, you traded a very risky stock.

Now compare that to a more conservative trade. You have

bought a 15% initial position and you added to your position
several times. The stock rose 100% in 6 months. The return
was 25% of your total trading capital. If this position had a 7%
stop-loss distance and you risked 1% of your total capital, the
chance / risk ratio would be 25. The trade took more time, but
the risk was acceptable and the chance / risk ratio much better.

If you are able to find enough aggressive stocks with the return
of the first example, you will make a lot of money. But that is
wishful thinking. Aggressive stocks tend to be volatile and
unpredictable. Not a good basis for a successful trading
approach.

Personally, I skip trades if I can not build a big position and my

initial stop loss is larger than 7%. My goal is always to build a
15% initial position and then increase it on the way up. Not
every stock can be traded with such an approach, and that's
fine for me. I tend to have fewer trades with a higher risk /
reward ratio than many trades with a lower risk / reward ratio
and higher risk.

84
Axsome Therapeutics ($AXSM): With a stop loss margin of 15%, you can only trade a small position.
Although the stock performed well, the return was low.

Learnings
✔ Risk your precious capital only with truly rewarding trades.

✔ Do not be misled by the gains of aggressive, volatile stocks.

The chance to trade such a move profitable is small.

✔ Focus on the chance / risk ratio of every trade rather than

on the percentage or money gain.

✔ Find trades with a small stop-loss distance (<7%) that have

the potential to double. Add to your position on the way up.

85
 Recommended
books

I am often asked about book recommendations. Here are a

few books that I read over and over again. I think it is better to
read a good book 100 times than to read 100 different books.

■ How to Make Money in Stocks: A Winning System in Good

Times and Bad (William O'Neil)

■ Trade Like a Stock Market Wizard: How to Achieve Super

Performance in Stocks in Any Market (Mark Minervini)

■ Think & Trade Like a Champion: The Secrets, Rules & Blunt
Truths of a Stock Market Wizard (Mark Minervini)

■ Momentum Masters - A Roundtable Interview with Super

Traders - Minervini, Ryan, Zanger & Ritchie II (Mark Min-
ervini, Bob Weissman)

■ Stan Weinstein's Secrets For Profiting in Bull and Bear Mar-

kets (Stan Weinstein)

86
■ How to Trade In Stocks (Jesse Livermore)

■ Reminiscences of a Stock Operator (Edwin Lefèvre)

■ How I Made $2,000,000 in the Stock Market (Nicolas Darvas)

■ Trading in the Zone: Master the Market with Confidence,

Discipline, and a Winning Attitude (Mark Douglas)

■ The Disciplined Trader: Developing Winning Attitudes (Mark

Douglas)

■ The Perfect Speculator: How to Win Big in Up Markets and

Lose Nothing in Down Markets (Brad Koteshwar)

■ The Perfect Stock: How a 7000% move was set-up, started

and finished in an astonishing 52 weeks (Brad Koteshwar)

■ Trend Following (Michael Covel)

■ Market Wizards: Interviews with Top Traders (Jack Schwa-

ger)

■ The New Market Wizards: Conversations with America's Top

Traders (Jack Schwager)

■ Stock Market Wizards: Interviews with America's Top Stock

Traders (Jack Schwager)

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