Short lessons on momentum trading, every day.

The Market Will Wear You Out Right Before It Moves

One of the most dangerous things about a sideways, choppy market isn’t just losing money.

It’s what the market does to you psychologically.

You buy a breakout. It fails. You take another shot. Nothing happens. A stock looks ready to go, then reverses. You get stopped out, try again, and get stopped out again.

Eventually, you get tired of playing.

William O’Neil understood this extremely well. His solution during difficult markets was not to force trades. He emphasized protecting capital, raising cash when conditions deteriorated, cutting losses quickly, and refusing to get sucked into weak rally attempts.

But there’s another side to that lesson that is just as important:

You cannot allow a bad market to condition you into being afraid of the next good one.

Because this is what markets do.

They chop. They frustrate. They produce failed breakouts and false starts. They make you question your system. Eventually, traders stop taking the setups they would normally take.

Then the environment changes.

O’Neil wrote about tracking every rally attempt and waiting for the market itself to confirm that something had changed. He wasn’t trying to predict the bottom. He wanted the evidence first.

That is the key.

Defensive does not mean disengaged.

You can be mostly in cash and still be studying the leaders.

You can be taking very little risk and still be building your watchlist, marking your buy points, studying relative strength, and watching for the stocks refusing to break down with the market.

Then, when the evidence begins to change, you start putting money to work and let your results tell you whether to increase exposure.

You can be frustrated with the environment and still be preparing for the next Stage 2 advance.

We’ve seen this repeatedly. Long stretches of sideways action can make it feel like the market is never going anywhere.

Until suddenly it does.

These periods feel like they will last forever while you are living through them.

They never do.

And one of the cruelest parts of the market is that the next major opportunity often begins after it has exhausted the people waiting for it.

Your job is not to predict when the chop ends, but to survive it, protect your capital, protect your confidence, and stay engaged enough to recognize when the evidence finally changes.

Some of the biggest opportunities come after everyone has been worn out.

Don’t let the market wear you down so badly that you’re asleep when it finally wakes up.

The Gap That Looks “Too High” May Be the Start.

A stock gaps higher, and your first thought is, “I missed it.”

Not so fast.

I want to know what happened before the gap, and what’s driving it.

Is it emerging from a base on huge volume after a strong earnings and sales report? Is there a major industry shift, like the demand for memory supporting the AI buildout? Is the company delivering a meaningful turnaround?

Did something significant catch the market off guard, with the growth fundamentals to support a sustained advance?

I’m looking for something new that changes the outlook. That’s a central part of the N in CAN SLIM.

With that context, a powerful gap can be an extremely bullish signal. The market may be reacting to a change it hadn’t fully priced in.

That doesn’t mean I have to buy immediately.

Maybe the stock runs for a few days, then forms a tight consolidation. Or it pulls back gently on light volume, holds most of its gap, and starts moving higher again. Some traders enter as strength returns after the pullback; others wait for a breakout to new highs.

There are different ways to enter. The gap gets my attention, but I still want a proper setup to act on.

Now consider a stock that has already been a leader for months. Its advance accelerates, it becomes stretched far above its base, and then it gaps sharply higher on enormous volume.

That can be an exhaustion warning, potentially part of a climax top. Even outstanding earnings don’t erase that possibility.

Just as I consider the overall market environment, I have to consider the individual stock’s history, fundamentals, and position within its trend.

A huge gap can signal a fresh opportunity or warn that a move is nearing exhaustion. The context gives it meaning.

Tightness Is the Setup. Leadership Is the Filter.

A beautiful chart pattern can still belong to the wrong stock.

A laggard can form a cup. A weak company can get tight. Recognizing the shape is only the beginning.

What matters is WHAT is getting tight.

William O’Neil combined chart analysis with strong earnings and sales growth, relative strength, institutional sponsorship, and the other characteristics he found in the market’s biggest winners.

The quality of the stock and the quality of the setup belonged together.

He described tight price action and drying-up volume at key points in a base as constructive. They can signal that selling pressure has diminished and less stock is coming to market.

Mark Minervini applies a similar principle. His SEPA process first qualifies the stock’s trend, then evaluates fundamentals and leadership characteristics. The VCP helps identify a precise entry as price swings contract and volume dries up.

That’s the combination I want: a strong candidate developing a setup where I can define my entry and risk.

A pretty pattern doesn’t turn a laggard into a leader.

And even a leader getting tight doesn’t automatically make it a buy. I still want price confirmation at the pivot, evidence of demand, and a market environment that supports the trade.

Strong fundamentals never excuse a failed setup or override my exit rules.

Leadership gets the stock onto my watchlist. Tightness gets me ready. The move through the pivot gives me the trigger.

First You’re Afraid to Pull the Trigger. Then You Can’t Stop.

A lot of beginner traders struggle with pulling the trigger.

They see the setup, they know what they are supposed to do, but when the moment comes, they hesitate. Fear takes over.

Sometimes that fear is simply inexperience, but a lot of the time it comes from something deeper.

They don’t truly know whether their system has an edge yet.

They haven’t studied enough examples. They haven’t taken enough trades. They don’t have enough experience to trust what they are seeing.

And sometimes the problem is even simpler.

They’re sized too large.

If one trade feels like it could seriously hurt you, of course you’re going to hesitate. Proper position sizing can dramatically change the psychology of execution because you already know exactly what you are willing to lose before you enter.

But then something interesting happens as traders improve.

They gain experience. They start making some money. Their confidence rises.

And the problem can completely reverse.

The trader who once couldn’t pull the trigger suddenly can’t stop pulling it.

Now every chart starts looking actionable. Rules get stretched. Mediocre setups become “close enough.” Instead of waiting for the trade, they start searching for a reason to trade.

They went from having too much fear of the market to not having enough respect for it.

The best traders eventually find the balance.

When a trade meets their criteria and looks like something that belongs in a model book, they take it.

No hesitation.

But they also don’t force trades that aren’t there. They don’t lower their standards because they’re bored. They don’t convince themselves that an average setup is suddenly exceptional because they want action.

Your starting environment can affect this evolution too.

Start trading in a difficult, choppy market and early losses may make you afraid to pull the trigger for much longer.

Start during an easy bull market, think the late 1990s or 2020 and 2021, and beginner’s luck can create the opposite problem. You learn to pull the trigger on everything because, for a while, everything seems to work.

Neither extreme is where you want to stay.

The goal is to develop enough confidence to take your best trades and enough respect for the market to leave everything else alone.

O’Neil Didn’t Invent CAN SLIM in a Vacuum

William O’Neil didn’t build his strategy by locking himself in a room and inventing everything from scratch.

He studied the people who were already winning.

In 1960, O’Neil analyzed more than 100 purchases made by the Dreyfus Fund, one of the top-performing funds at the time. He noticed something that went against conventional Wall Street thinking:

They weren’t buying cheap stocks. They were buying stocks breaking into new highs from sound chart patterns.

That became one of the foundational ideas behind O’Neil’s approach.

Then he studied Jesse Livermore, who influenced his thinking on pivot points, pyramiding, and adding to winners instead of averaging down. O’Neil explicitly said he adopted Livermore’s pyramiding method.

Gerald Loeb reinforced aggressive loss cutting.

Bernard Baruch reinforced the idea that you don’t need to be right most of the time if you keep losses small and make enough when you’re right.

O’Neil also studied the chartists who came before him, tested their ideas against actual historical winners, kept what worked, and rejected what didn’t.

And maybe his greatest teacher was his own mistakes. After watching profits disappear in 1961, he went back through every trade, marked his buys and sells on charts, and studied exactly what he had done wrong.

That is exactly what we are doing with Momentum Trading Strategy.

O’Neil built on the work of the great traders who came before him. We are building on O’Neil, Livermore, Loeb, Minervini, Ryan, Weinstein, Darvas, Zanger, and the other great momentum and trend traders who followed the same lineage.

We’re not trying to reinvent the market.

We’re studying 100+ years of what has actually worked, taking the best ideas from the traders who proved them with real results, testing them, and continuing to refine the playbook.

That’s how trading knowledge gets passed down: study the winners, keep what works, learn from your mistakes, and build on the shoulders of those who came before you.

“Buy Low” Can Keep You Buying All the Way Down

Stan Weinstein wrote in Secrets for Profiting in Bull and Bear Markets:

“Buy low, sell high is a cliche, not a blueprint for action.”

A stock falls from $100 to $70. You call it a bargain.

At $50, it looks even cheaper.

But the chart keeps deteriorating, and the price you remember keeps convincing you to buy.

Weinstein’s approach was to buy strength as a stock broke out of a base into Stage 2, its advancing phase, supported by strong volume.

That often meant paying more than someone who bought near the bottom.

His newsletter’s motto was “The Tape Tells All.”

His point was that prices already reflect known information and expectations. A stock can begin advancing before the headlines or reported earnings make the opportunity feel comfortable.

That’s why I want to see what price and volume are telling me.

I still need a proper entry, a logical stop, and controlled risk. An impressive advance alone doesn’t mean chasing.

But I’m willing to pay a higher price when the stock offers a better setup.

The lowest price and the best buying opportunity aren’t the same thing.

Algorithms Changed Trading. They Didn’t End Trends.

Trading went from ticker tape and phone calls to electronic markets, quantitative models, and AI.

Through those changes, momentum and trend following have built an extensive research record.

Narasimhan Jegadeesh and Sheridan Titman documented profitable strategies buying previous stock winners and selling previous losers over intermediate holding periods. Brian Hurst, Yao Hua Ooi, and Lasse Pedersen later extended historical trend-following tests across markets and back to 1880.

There’s also research connected directly to the growth-stock approach we study.

In a 1988 Financial Analysts Journal paper, Marc Reinganum identified accelerating quarterly earnings and high, improving relative strength among characteristics preceding exceptional stock advances.

His nine-characteristic model produced an average one-year holding-period return of 30.6%, versus 6.9% for the S&P 500, in its historical test.

O’Neil cited Reinganum’s work. Minervini described it as an influence on his own approach.

One plausible explanation for momentum’s persistence is human behavior.

Investors can initially underreact to change, then chase a move once it becomes obvious. Harrison Hong and Jeremy Stein developed a formal model of that process.

Faster computers don’t automatically eliminate those forces.

That gives me a reason to expect momentum opportunities to continue.

Momentum and trend following form the foundation of Momentum Trading Strategy.

You Can’t Master a Strategy You Keep Abandoning

Call it squirrel syndrome or shiny object syndrome. It can keep traders stuck for years.

They discover a strategy and get excited. They start learning it, take some trades, and feel like they’ve finally found their approach.

Then it hits a rough patch.

Suddenly, another system looks better. Someone else is making money. They abandon what they were learning and start over.

Repeat that long enough and you can spend years in the market without becoming proficient at anything.

Mark Minervini puts it clearly in Think & Trade Like a Champion:

“But you won’t overcome less favorable phases by adopting a different style each time you run into difficulty.”

A proven strategy will still have unfavorable conditions. That’s when you review your execution, manage your exposure, and study what needs improving. Sometimes the adjustment is smaller positions or sitting out.

Also, you may be walking away from the learning process just as the experience could start becoming useful.

Even experienced traders pay for wandering outside their strengths. Many market wizards describes taking trades outside their competence, then losing money and being forced to refocus on what they do best.

Yet someone who hasn’t found consistency assumes they can keep bouncing between approaches and somehow get there.

Master one approach first. Then earn the right to expand.

Once you’ve demonstrated consistent execution and results, you have a foundation for adding setups to your playbook or carefully testing another approach for different market conditions.

If you’re brand new, exploring makes sense. Learn what’s available and what fits your personality, schedule, and temperament.

But eventually, you have to choose a proven approach and give yourself a real chance to learn it.

Pick your style. Commit to the work. Then get after it.

Stop Trading the Chart You Hope to See

You find a stock with strong earnings, strong relative strength, and a base that’s tightening up. You can already picture the breakout.

You’ve watched it for weeks. You don’t want to miss it. So you buy before your entry signal appears.

Peter Brandt addresses this in Diary of a Professional Commodity Trader:

“Do not anticipate what a chart might become. Make a chart prove itself.”

That lesson applies directly to growth stock and momentum trading.

O’Neil emphasized waiting for a stock to reach a proper buy point. Minervini warned against forcing trades because a setup looked “close enough.”

The temptation is subtle. You start with a clear plan, then gradually lower the requirements because you’re excited about the stock.

“Another day of tightening would be better, but this should work.”

“It hasn’t reached my trigger, but I’ll get a better price.”

Eventually, you’re trading what you expect to happen while skipping the conditions you originally required.

A valid early entry still has its own trigger, structure, and risk plan. Simply getting impatient with a developing base doesn’t create one.

A promising setup earns a place on my watchlist. It earns my money when it meets my entry rules.

Your Stop Wasn’t Wrong Just Because the Stock Rebounded

You buy a growth stock from a proper base. The breakout fails, it hits your stop, and you sell.

A few days later, it turns around and takes off.

“I knew I should have held.”

In One Good Trade, Mike Bellafiore writes:

“Do not judge a trade based upon its results!”

He explains that a losing trade can still be a good trade when the reasoning was sound and the execution followed the plan.

William O’Neil addresses the same frustration in How to Make Money in Stocks. After acknowledging that stocks will sometimes recover after you sell, he writes:

“But when this happens, don’t conclude that you were wrong to sell it.”

Bellafiore is discussing intraday trading and O’Neil is position trading. Both passages warn against judging a decision solely by what happened afterward.

That doesn’t mean every entry or stop was well placed. Review the setup, your timing, and your exit. Learn from genuine mistakes.

But a rebound alone doesn’t prove that respecting your stop was one of them.

You made the decision before you knew whether the stock would recover or keep falling. Protecting your capital meant accepting that uncertainty.

Don’t let a stock that came back teach you to hold the next one that doesn’t.

The Earnings Look Great. The Stock Disagrees.

Imagine a company reports earnings up 50% and sales up 30%. You love the numbers. Then the stock gaps down on heavy volume and breaks support.

Your first thought: “That makes no sense. The report was great.”

Martin Zweig addressed this in Winning on Wall Street:

“The worst thing the stock can do on news of earnings is to drop sharply.”

Zweig looked for earnings and sales growth, just like O’Neil, but he also examined how the stock reacted. A sharp decline could eliminate a stock from consideration, even when the report looked good to him.

The trap is becoming so attached to the numbers that we use them to justify holding, adding, or giving a deteriorating stock “a little more room.”

We use strong earnings and sales growth as screening criteria because those characteristics have appeared in many of the market’s biggest winning stocks, including many of our own winners.

But those fundamentals never trump price action.

The market is full of emotional human beings acting on different expectations, fears, and information. The market is also forward looking and its behavior doesn’t have to make sense to you. Believing a stock should be going higher won’t stop it from going lower.

That’s what I mean when I say the market is always right. Whatever our analysis says, the price determines what happens to our money.

We don’t have to agree with the price action. We do have to respect it.

LITE is getting interesting again.

LITE rallied off its 200-day moving average when the market made its low on July 29.

Unlike a lot of the other prior big winners, it has since reclaimed its 50-day / 10-week moving average and continued to hold support. Now it sits less than 10% from all-time highs.

And the fundamentals are still extremely strong.

LITE has been putting up triple-digit earnings growth, triple-digit sales growth, and carries a 99 one-year Relative Strength Rating.

Institutional sponsorship has also been expanding aggressively, with the number of funds owning the stock growing roughly +20% quarter over quarter.

We saw bigger volume coming off the lows and around earnings. Then, as the stock moved sideways and found support around the 50-day, volume dried up considerably.

Yesterday, big volume came back in as LITE pushed toward the top of the consolidation.

Back in January, people told me LITE looked too volatile.

Then they missed the next roughly 100% leg higher.

They told me the same thing back in October 2025.

Welcome to growth stock and momentum trading. 😉

The biggest winners are rarely going to look comfortable.

Bullish at the Open. Flat by the Close.

Successful traders have to be insanely adaptable.

You need enough conviction to take a position and enough flexibility to exit when the evidence changes. You can be bullish today and defensive tomorrow. Sometimes that adjustment happens before the close.

That can look inconsistent to someone watching from the outside.

In Market Wizards, Jack Schwager describes Paul Tudor Jones going from heavily short to bullish between interviews roughly two weeks apart. The decline Jones expected hadn’t followed through. He abandoned his original position and became willing to trade the other side.

His conviction was always subject to what the market actually did.

That’s an essential trading skill: recognizing when the evidence supporting your decision has changed, then having the discipline to respond.

Your Stop-Loss Won’t Save You From Overtrading

In Momentum Masters, Mark Minervini makes a blunt observation:

“A whipsaw market is more dangerous than a bear market.”

For a breakout trader, the trap is easy to recognize.

A stock breaks out. You buy. It reverses. You take a small loss.

Then you do it again. And again.

You’re respecting every stop, but your account keeps shrinking because you keep committing capital to setups that aren’t following through.

Minervini says excessive whipsaws call for examining your selection criteria and the market.

In the same discussion, David Ryan says he reduces exposure and position size. Dan Zanger says he usually steps aside entirely when the market turns choppy.

A stop controls your exit. You still control how much you risk, how often you trade, and whether the next setup deserves your money.

You don’t have to participate in every market.

The market can go nowhere while your account goes down.

Divorce Your Ego From the Trade

In Pit Bull, Marty Schwartz shared a lesson from the craps table:

“Divorce your ego from the game.”

He warned that taking the game personally could tempt you to double your bets and keep playing to get even. He called that behavior self-destructive.

The same trap appears in a losing trade.

You widen the stop. Add size. Decide this trade has to make back what you lost.

Nothing about the setup improved. Your need to get even took over.

In Market Mind Games, Denise Shull explains why understanding your emotions matters. Feelings provide information. Recognizing what you feel and why helps you understand what’s influencing your decisions.

Feeling an urge doesn’t mean you have to act on it.

You can acknowledge disappointment and still respect your stop. You can recognize the urge to get even and still wait for another valid setup.

The frustration deserves your attention, but doesn’t automatically justify another trade.

Pay attention when “this trade meets my criteria” turns into “I need this one to work.”

A loss is part of trading. Increasing your risk because accepting that loss feels painful is how the damage grows.

Protecting your account sometimes means letting go of the need to be right.

Never buy a stock because it appears cheap after getting smashed

Stan Weinstein wrote that in Secrets for Profiting in Bull and Bear Markets. LULU shows why the warning matters.

Weinstein’s framework follows four stages:

Stage 1: The base.

Stage 2: The advance.

Stage 3: The topping phase.

Stage 4: The decline.

On this chart, LULU is making lower highs and lower lows beneath a falling moving average.

Yet every lower price can tempt someone into calling it a better deal. They remember the old high, love the brand, and start averaging down while the chart keeps deteriorating.

The old price doesn’t tell you where the decline will end.

Averaging down increases your exposure. It doesn’t turn Stage 4 into Stage 2.

I want to see a proper base develop and evidence of a new advance. A stock has to earn its place back on my buy list.

Being cheaper than it used to be isn’t enough. If the chart is still breaking down, that “discount” can keep getting bigger.

99 Wins. One Loss. Account Gone.

One of the most dangerous things the market can do is reward you for a bad habit.

You refuse to cut a loss. The stock recovers. You average down on the next loser. It recovers too. Do this enough times and you start believing you’ve figured something out.

Your win rate looks incredible. Your confidence grows, but so does the amount you’re willing to risk to avoid being wrong.

This can become martingale-style averaging down. The classic martingale doubles the bet after each loss, counting on an eventual win to recover everything. Continually adding to a losing stock can create the same trap: increasing your exposure while depending on a recovery.

Then comes the stock that keeps falling. You keep adding. This time, the recovery never arrives, and one loss wipes out years of gains, or your entire account.

That pattern is called negative skew: frequent small wins interrupted by a rare, devastating loss. When that loss threatens your ability to keep trading, you’re facing risk of ruin.

Win $1,000 on 99 trades, then lose $150,000 on one. You have a 99% win rate and you’re down $51,000.

Yet successful traders can win less than half the time. Even a 20–30% win rate can be profitable when the winners are sufficiently larger than the losses.

The key is staring you right in the face: how much you make when you’re right, and how much you lose when you’re wrong.

That’s why I emphasize getting comfortable taking losses. Small losses are part of the business. Cutting them won’t make a bad strategy profitable, but combined with an edge and sensible position sizing, it helps keep you in the game long enough for your winners to matter.

It reminds me of Tom Hougaard’s book, Best Loser Wins.

I’m willing to take losses along the way. I’m not willing to let one trade end the journey.

Marine Shipping Is Showing Exactly What O’Neil Taught

“The majority of the leading stocks are usually in leading industries.” — William O’Neil, How to Make Money in Stocks

Look at the Marine Shipping strength in MTS Velocity. The group ranks #3 out of 140 industry groups, with a blended relative strength rating of 98.

EDRY, TNK, SB, TRMD, FRO, DHT. Multiple names are advancing together, with strong earnings growth and relative strength showing up across the group. This is exactly why I look beyond an individual stock’s chart and check what its peers are doing.

DHT is one example, working through resistance near $20.64 after a multimonth base. The attached screen shows quarterly earnings growth of approximately 249%, sales growth of 122%, and fund ownership climbing from 222 to 328 funds since December 2024.

Strong fundamentals. An improving chart. A leading industry group behind it.

That doesn’t make every shipping stock a buy. O’Neil emphasized selecting the leaders within strong groups, and we still need a proper entry and a defined exit if the trade fails.

Before you buy a stock, look at the company it keeps.

Before You Pick a Stock, Read the Market

Everyone wants to find the next big winning stock. But before you open your screener, step back and ask: What kind of market am I buying into?

Martin Zweig put it plainly in Winning on Wall Street:

“Big money is made in the stock market by being on the right side of the major moves. I don’t believe in swimming against the tide.”

Zweig studied monetary conditions, price and volume, and investor sentiment alongside individual stock fundamentals. The market environment helped determine how aggressive he should be. When conditions were favorable, he pressed. When the evidence was mixed, he held more cash.

That’s why my process starts with the big picture. Before screening for earnings, sales growth, relative strength, and chart setups, I want to understand the market trend, participation, and where leadership is developing.

Finding a great stock is only part of the job. Knowing when to press and when to back off matters just as much.

This week’s Big Picture Market Pulse is out, walking through that evidence before we dive into individual stocks.

Some of the greatest traders in history made understanding the market part of their routine. Why shouldn’t you?

The Best Setups Often Look the Scariest

Some of the strongest stocks will look expensive by the time you notice them.

That doesn’t automatically make them bad trades.

I want stocks showing relative strength. A strong advance gets my attention, then I look for a proper setup where I can define my entry and risk.

Look at SNDK. The first highlighted advance was roughly 374%. It then consolidated, and the next marked advance was roughly 703% to the later peak.

If I dismissed it because it had “already gone up too much,” I would have stopped looking before the next setup developed.

The trap is letting the price you could have paid months ago determine whether today’s opportunity deserves consideration.

A strong stock still needs a proper entry, a logical stop, and a position size that fits the risk. Its earlier advance doesn’t replace any of that.

Don’t confuse discomfort with danger. Judge the setup in front of you, not the price you wish you had paid.