The key to becoming a successful trader is mitigating your risk and creating a system that forces you to trade heavy during optimal market conditions. That's what Wall Street veteran Mark Minervini told the attendees at the 2022 FinTwit Conference on Saturday. The event was hosted by Benzinga and Lupton Capital at the ARIA Resort & Casino in Las Vegas.
Current Market Conditions: Minervini, who's the author of “Trade Like A Stock Market Wizard & Trade Like a Champion,” said the post-pandemic bull run allowed many traders to be rewarded without having a substantial risk-mitigation strategy.
He said the current downturn in the markets can act as a learning experience. “This particular environment that we’re in right now is a great time where I think people are open-minded to talk about risk.”
He said watching stocks going down 50% to even 90% has been a wake-up call for new traders. “There’s a lot of people who didn’t realize that this could happen, and it could happen in such a quick fashion.”
Minervini says in the decades of his own trading experience, along with those of his professional trading peers, “none of us have figured out a better way to manage risk, or to avoid a big decline, other than taking a small loss.” He reflected on his career, and said he began to experience success when he committed to cutting his losses.
He said the average person has an instinct to take bigger positions in a downtrend, assuming the market is oversold, and smaller positions when the markets are climbing higher, anticipating that a top is near. To become a successful trader, you need to do just the opposite, he said.
“You want to make sure that your strategy forces you to trade your largest when you’re trading your best, and your smallest when you’re trading your worst,” Minervini explained.
He said a successful system needs to be largely automatic. “When the bull markets are happening, you want to be heavy.”
Be A Pig Or A Chicken: Minevrini referred to Stan Druckenmiller, in talking about knowing when to be a “pig” and when it’s smarter to be a “chicken.” He emphasized that the defining quality of a successful professional trader is knowing when to switch into each role.
Minervini explained that by being aggressive during bull markets, he’s able to make a large amount of money in a short period of time, which then allows him to stay out of the market when conditions are difficult and there’s a lot of noise.
“I’m always in cash when a market is in a downtrend. I’ve never been caught in a downtrend, ever,” Minervini said. “In the 87 crash, I was even out. That’s the key.”
When it comes to taking positions today, with the markets turning bearish, Minervini says his approach is progressive exposure.
He starts by taking smaller positions to see if they work. If those positions begin to show profits, he'll use those funds to begin to build bigger positions, which act to finance his risk.
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