Momentum Masters Flashcards

A collection of vocabulary and key concepts from the Momentum Masters roundtable interview with traders Minervini, Ryan, Zanger, and Ritchie II.

MARK MINERVINI

A successful momentum trader who won the 1997 U.S. Investing Championship and developed the SEPA® methodology, achieving a total return of $36,000\%$ over five years.

DAVID RYAN

A three-time U.S. Investing Champion and protégé of William O'Neil who achieved a total return of $1,379\%$ between 1985 and 1987.

DAN ZANGER

The author of The Zanger Report who turned $10,775$ into an audited gain of $18$ million in 18 months during the late 1990s.

MARK RITCHIE II

A trader who won Mark Minervini's 2010 Triple-Digit Challenge by returning $100\%$ in less than six months and subsequently grew his account over $1,000\%$ by 2014.

SEPA®

Specific Entry Point Analysis; the proprietary trading methodology used by Mark Minervini to identify low-risk entry points in high-performance stocks.

Volatility Contraction Pattern (VCP)

A technical setup where a stock exhibits a series of price contractions with drying-up volume, establishing a 'line of least resistance' before a potential breakout.

Pivot Point

A specific price level or 'line in the sand' where a stock emerges from a consolidation or base, triggering a buy signal.

Relative Strength (RS)

An indicator of how well a stock is performing compared to the general market and its industry peers, often used to identify market leaders.

High-Frequency Trading (HFT)

An automated trading style often criticized by the Momentum Masters as a form of legal front-running that creates 'noise' and false moves in the market.

Optimal f ​/ Kelly Formula

Mathematical concepts used by Mark Minervini to determine position sizing, where the optimal size for a $2:1$ reward-to-risk trader is identified as $25\%$ of the portfolio.

Follow-through Day (FTD)

A term from Investor's Business Daily (IBD) indicating a new market uptrend after a correction, signified by a major index rising on heavy volume.

Bottom-up Investing

An approach favored by the traders where individual stock selection and technical setups lead the investor to the strongest industry groups, rather than starting with a macro view.

Initial Public Offering (IPO)

A new stock issue that the masters typically wait to trade until it has at least $3$ to $4$ weeks of trading history to establish a base.

Pyramiding

The technique of increasing position size by adding to winning trades as they move higher, often used to 'torque' risk-reward to the upside.

'The Pillow Factor'

A risk management term referring to selling a position down to a size that allows the trader to sleep comfortably without worry.

Zanger Volume Ratio (ZVR)

A tool provided via eSignal by Dan Zanger to extrapolate and analyze intraday volume to confirm if a breakout is valid.

Time Stop

A rule where a trader sells a stock simply because it has not moved in the expected direction or timeframe after purchase, regardless of price.

'Death by a Thousand Cuts'

A market condition in which a trader suffers numerous small losses in a 'wipsaw' or choppy environment, preventing any significant gain.

Backstop

A trailing stop used to protect a portion of a gain once a stock has advanced a multiple of the original amount risked.

Analysis Paralysis

A psychological state where a trader over-analyzes information to the point of being unable to take decisive action or pull the trigger on a trade.

'Sit-out Power'

The discipline required for a trader to stay in cash and wait for high-probability setups when market conditions are unfavorable.

Mark-to-market

A tax status under IRS rules where Dan Zanger's account is tabulated based on all gains or losses as of December 31 each year.

Climactic Move

A rapid price advance, often $30\%$ or more in just a few weeks after a long run, which frequently signals an exhaustion point where the master traders look to sell.

'Serial Gapper'

A term used by David Ryan for a volatile stock that frequently opens at prices significantly far from its previous close, posing higher risk.

Violation

Specific negative price or volume behaviors after a breakout, such as a drop on heavy volume, that might cause a trader to sell before their formal stop is hit.