Short lessons on momentum trading, every day.

The Secret Signature of Superperformance

Why the Tightest Stocks Often Win the Biggest

If you could spot a future monster stock before it makes its real move, would you?

Not because someone tipped you. Not because it “looks cheap.” But because the structure is telling you something.

In Think & Trade Like a Champion, Mark Minervini explains that before explosive breakouts, the best stocks often go through a Volatility Contraction Pattern, or VCP.

Here is the key:

As price moves up the right side of a base, each pullback gets smaller.

The first drop might be 25 percent. The next 15 percent. Then 8 percent. Then maybe just 5 percent.

Each contraction is tighter than the one before.

That tightening is not random. It is supply drying up.

Weak holders get shaken out early. Stronger hands step in. Sellers become scarce.

The stock begins to coil.

A VCP is like a stock’s individual fingerprint. They all share the same core characteristics, but no two look exactly alike. Some have two contractions. Some have five. Some are deep early and tighten dramatically. Others are shallow the whole way through.

But the DNA is the same:

• Higher lows

• Declining volatility

• Volume drying up near the pivot

• Tight closes near the highs

The stock is under quiet accumulation.

When price finally pushes through the pivot on expanding volume, it often does so with force because there is simply less supply left to absorb demand.

You are not buying noise. You are buying compression.

And compression, when aligned with strong fundamentals and a healthy market, is often the launchpad for superperformance.

Study the contractions. Respect the tightening. Every great winner leaves clues before it runs.

When XPO Hits the RS Scanner… Pay Attention

Interesting times when a name like XPO lights up the relative strength scan.

AXTI Is Up 127% Since I Flagged It in Chat

On February 5th, I mentioned AXT Inc. to paid subscribers in the chat.

Why?

It was showing up on my Relative Strength screener and pulling back to a key moving average that had been supporting price.

Nothing fancy.

No crystal ball.

Just strength plus constructive pullback.

Since then, the stock is up 127 percent.

Am I some stock picking guru?

Absolutely not.

I learned from people far more successful and intelligent than me. I just follow the process.

Here’s the truth most people do not want to hear.

I have more losers than winners.

The difference?

My winners pay for the losers and then some.

Bottom line.

I cut my losses short.

And I let my winners run.

That is the entire game.

Geopolitical Headlines Get Priced In Faster Than You Think

Anyone that has been in the markets for a minute knows geopolitical flare ups like what we are seeing with Iran usually get priced in fast.

It is completely normal to see markets drop on the initial headline shock.

Oil spikes. Futures dip.

Then something interesting happens.

By the end of the week, a lot of that fear gets absorbed.

I am not a macro guy. I do not base my trading on any news feed. I do not trade headlines.

I will decide what to do based on price action and my criteria for stock picking. That is it.

But a lot of new traders get spun up in this stuff.

They see red futures and assume this is the start of something catastrophic.

Historically, most geopolitical shocks create an initial drop. Then they get priced in faster than people expect.

Markets are forward looking machines.

Unless there is a prolonged structural disruption, we often see fear fade and price recover quicker than the crowd thinks is possible.

I do not have a crystal ball.

I am just saying this is not something to panic over.

Watch price.

Stick to your rules. Focus on what you can control.

Let the market tell you what matters.

AXTI Is Up 3,000%… And Almost Back to Its 2000 Highs

Up 3,000 percent!

Found this one on my Relative Strength scanner.

From dot com darling to a 98 percent collapse.

AXT Inc. topped near 50 dollars in 2000.

Then it fell apart.

For 25 years it went nowhere. No sustained leadership. Just lower highs and dead money.

And then April 2025.

Right after the Nasdaq bottomed during the tariff scare and ripped higher, AXTI quietly turned up from under a dollar.

Since then it has surged more than 3,000 percent.

Now it is pressing into a 25 year ceiling with:

• 99 RS

• Explosive multi time frame strength

• Surging volume

• Sales and earnings estimates accelerating

Forward projections into 2027 are eye opening. Some estimates show earnings growth of over 11,000 percent off depressed levels.

The real question is not the percentage.

It is durability.

Is this:

A one cycle rebound fueled by tariff relief and the domestic semiconductor narrative?

Or the start of a true Stage 2 institutional move backed by sustainable earnings power?

A lot of investors get scared at all time highs.

But when you study the biggest winning stocks in history, that is often when their real run begins.

This is a U.S. based semiconductor materials company headquartered in Fremont, California. In a world worried about Taiwan supply chains, that story matters.

But price is now testing a level that trapped investors for 25 years.

Clear 50 with real volume and tight action and this becomes historic.

Fail here and it becomes just another high flyer that ran too far too fast.

Either way.

What a move.

Don’t Gamble Into Earnings

Minervini doesn’t gamble. Neither should you.

From Think and Trade Like a Champion:

“My general rule of thumb is never hold a large position going into a major report unless I have a reasonable profit cushion. If I have a 10 percent profit on a stock, then I could usually justify holding into most earnings reports. However, if I have no profit, or worse I’m at a loss, I usually sell the stock or cut down my position size to guard against the possibility of a 10 to 15 percent gap against me. Regardless of how well you know the company, holding into earnings is always a crapshoot.”

This is risk-first thinking.

It’s tempting when a stock is set up properly and earnings are a few days away. Tight action. Constructive base. Volume dry-up. You want to anticipate the breakout.

Don’t.

You must assume the stock can gap down 10–15% just as easily as it can gap up. Overnight risk is outside your control. If you are at breakeven or down, you are exposing capital to an event you cannot manage.

The correct approach is simple:

No cushion → wait. Profit cushion → manage size. Full position with no profit → unnecessary risk.

If the earnings are strong and the stock acts right, you can buy it after the report on proper price and volume action. If it gaps down and breaks the pattern, you avoided a loss.

Risk first. Profit second.

That is how professionals survive long enough to achieve superperformance.

Zoom Out Before You Zoom In

Before the week ahead, spend time zooming out before you zoom in.

This is the professional weekend process. We step back, assess the primary trend, measure leadership, evaluate breadth, credit, liquidity, and sector rotation, and only then move into stock selection.

Preparation precedes execution.

This week’s Big Picture Market Pulse walks through the full top-down framework before we refine into actionable setups.

Serious traders prepare first.

https://tradingmomentum.substack.com/p/big-picture-market-pulse-march-1

Scale Up When You’re Right. Scale Down When You’re Wrong.

Big success in trading is not one huge bet. It is a series of small wins stacked over time.

I rarely enter the market at full size. I start with a pilot position, usually a quarter position. If the trade works, I add. If I gain traction across multiple trades, I increase overall exposure. If trades do not work, I scale down.

If I am not profitable at 25 percent invested, why would I move to 75 percent or 100 percent?

The goal is simple:

Trade your smallest when you are trading your worst. Trade your largest when you are trading your best.

By scaling up only after wins, profits finance risk. By scaling down after losses, you prevent damage.

That is how you compound money.

This discipline creates superperformance.

“Losers Average Losers.”

Paul Tudor Jones had a sign above his desk:

“Losers average losers.”

I learned why the hard way.

Earlier in my trading, I averaged down.

The stock dropped. I added. It bounced. I got out green.

That win reinforced the behavior.

So I did it again. And again.

Until one day… it didn’t come back.

And I took a major hit.

That pain changed me.

Because averaging down doesn’t just increase size. It increases exposure to weakness.

When it works, it builds a bad habit. When it fails, it can wipe out months of discipline.

I made a decision after that loss:

I will never average down again. And I don’t look back at charts to see “how much I would have made.”

That thinking is poison.

Every bull cycle, traders get rich with bad habits.

Averaging down. Oversizing. Ignoring stops.

And every cycle, most of them disappear.

There’s a reason one of the greatest investors of all time kept that sign above his desk.

Press winners. Cut losers.

To Compound or Not to Compound

Two traders.

Chris and John.

Both start with $100,000. Both take 24 trades. Same entries. Same exits. Same system.

12 trades gain +15%. 12 trades lose −7%. They alternate win/loss for all 24 trades.

Identical performance.

Different capital management.

Chris — Fixed Position (No Compounding)

He risks a fixed amount based on $100,000 every trade.

Each winner: 15% of $100,000 = +$15,000

Each loser: 7% of $100,000 = −$7,000

12 winners = +$180,000 12 losers = −$84,000

Net profit = $96,000

Final account = $196,000 (+96%)

John — Compounds Every Trade

John reinvests everything.

After each 15% win, position size increases. After each 7% loss, it decreases.

Because gains are larger than losses, the positive asymmetry compounds.

After 24 alternating trades:

Final account ≈ $249,000 (+149%)

The Difference

Same system. Same win rate. Same gain/loss profile.

The only difference:

One compounded a positive expectancy edge.

Compounding does not create edge. It magnifies it.

Two Traders. Same $100,000 Account. Same Target Return. Completely Different Edge.

Most traders think performance comes down to win rate.

It doesn’t.

It comes down to expectancy.

Both traders in the image:

• Start with $100,000

• Use 10% position size

• Want a 40% return ($40,000)

But their math tells two completely different stories.

Trader A

• 35% win rate

• 16% average gain

• 5% average loss

• 3.2 gain/loss ratio

Expectancy:

(0.35 × 16%) − (0.65 × 5%) = 2.35% per trade

At 10% exposure, that’s:

0.235% account growth per trade ≈ $235 per trade

To hit $40,000?

He needs 171 trades.

Lower batting average. Solid asymmetry. Heavy trade frequency required.

Trader B

• 45% win rate

• 18% average gain

• 7% average loss

• 2.57 gain/loss ratio

Expectancy:

(0.45 × 18%) − (0.55 × 7%) = 4.25% per trade

At 10% exposure:

0.425% account growth per trade ≈ $425 per trade

To hit $40,000?

He needs 95 trades.

Higher win rate. Still asymmetric. Almost half the workload.

The Real Lesson

Win rate alone means nothing.

Trader A actually has the bigger raw R multiple.

Trader B compounds faster because his edge per trade is stronger.

Same capital. Same goal. Same exposure.

Different math.

That’s what Result-Based Assumption Forecast exposes.

You don’t guess your average gain. You don’t guess your win rate. You pull them from real trading data.

The only estimates are:

• Portfolio size

• Position size

• Desired return

Everything else must be earned.

RBAF doesn’t predict the market.

It measures you.

And once you understand your edge, performance stops being hopeful…

It becomes engineered.

Even Druckenmiller Fought His Mind

Why Mastering Yourself Is the Real Edge

At the end of his Morgan Stanley interview, Stanley Druckenmiller did something rare.

He was brutally honest about the mental battle.

Talking about mistakes and drawdowns, he said:

“I have so many scars. You can't believe it.”

On the Nasdaq melt up:

“I got emotional, which I fight every day.”

He even admitted:

“I would literally like throw up like once or twice a week, just from anxiety…”

And later:

“I had imposter syndrome for like 15 years.”

Think about that.

One of the greatest money managers of the last 40 years. 30 percent annualized. No losing years at Duquesne.

And he battled anxiety. Emotion. Self doubt.

This is the part no one talks about.

The market is not just analysis.

It is emotional regulation.

You will:

• Get emotional

• Doubt yourself

• Feel pressure

• Question your edge

The difference is not avoiding those feelings.

It is managing them.

Even Druckenmiller says you will continue to make mistakes and get emotional.

Mindset is not optional in this game.

It is the game.

What Druckenmiller, O’Neil, and Minervini All Understand About Market Shifts

If you trade long enough, you will feel it.

Something that worked beautifully… suddenly doesn’t.

Breakouts fail. Follow through days don’t follow through. Trend trades chop.

And the temptation is to think:

“It’s broken.”

But here’s what Stanley Druckenmiller makes clear.

He said:

“That's not true anymore because everybody else has learned that.”

And:

“I haven't unlearned them, but I don't rely on them to the extent that I used to.”

He also said:

“There's no silver bullet.”

That is the key.

There are foundational truths in markets that never change:

• Supply and demand

• Crowd psychology

• Leadership cycles

• Trend persistence

But tactics can fluctuate in effectiveness.

This does not contradict William J. O'Neil. It supports him.

O’Neil constantly stressed that most breakouts fail in corrections and that the general market direction determines your success rate.

It does not contradict Mark Minervini either.

Minervini emphasizes environment. He teaches that optimal conditions increase probability and poor conditions demand defense.

The principle stays.

The environment shifts.

Breakouts do not “stop working.”

They work when conditions are right.

Trend following does not die.

It underperforms when markets are hostile.

The edge is not blind loyalty to a tactic.

The edge is awareness.

Adapt exposure. Adjust aggressiveness. Stay anchored to core principles.

Markets evolve.

Discipline does not.

Stanley Druckenmiller on Letting Winners Run

Cut losers short. Let winners run.

Anyone who has been reading my notes is probably sick of hearing it.

But this is foundational.

Rookies struggle with taking losses. Pros struggle with sitting with big gains.

Druckenmiller tells on himself with Nvidia.

After riding it from around 150 to 800, he said:

“So then the stock goes to 800 and I violated everything I said in the interview. I couldn't stand success. I'd gone from 150 to 800. I was long term in it. I couldn't deal with it and I sold it. And then it was 1,400 like five weeks later and I was sick.”

Beginners fear losses.

Professionals can take losses.

But even the greats feel the discomfort of big gains.

The skill is not just cutting losers.

It is having the discipline to let a true leader keep working.

Stanley Druckenmiller on NVDA, AI, and Not Being an Expert

In 2022, Druckenmiller noticed something simple but powerful.

The “kids at Stanford” were shifting from crypto to AI.

That told him where the next wave was forming.

His partner said Nvidia was the way to play AI. So he bought a position.

Then ChatGPT launched. When he saw what it could do, he realized how big the shift was and doubled the position.

Here is what is important.

He openly admitted most of the AI discussion went over his head.

He was not an AI engineer. He was not a semiconductor expert.

He followed the theme. He recognized the transition. He pressed when confirmation came.

You do not need to understand every technical detail.

You need to understand where capital, talent, and momentum are going.

Themes change. Leadership rotates.

The money goes to those who recognize it and act.

Stanley Druckenmiller on Crowded Trades

Most traders are afraid of crowded trades.

Druckenmiller is not.

He said:

“I don't care if a trade is crowded, if I think the thesis is right and the trend is with me. I mean, for entry points I care, but I don't really care in terms of the investment. It doesn't bother me.”

Read that again.

If the trend is right and the story is right, being crowded does not matter.

Stanley Druckenmiller on Intellectual Satisfaction vs Making Money

Druckenmiller said something very honest:

“I get some intellectual satisfaction out of playing in the 20%.”

But right before that he made the real point:

“I think contrarianism is overrated.”

And:

“Soros used to say the crowd's right 80% of the time.”

There it is.

Being contrarian feels smart. It stimulates the mind. It gives you that “I see what others don’t” rush.

I see a lot of overly intellectual, contrarian investment newsletters. I listen to them too sometimes. It is interesting. It is stimulating.

But if I am honest, it does almost nothing for my account.

It is entertainment.

The consistent money is less sexy.

Trend following. Relative strength. Risk management.

Not intellectual superiority.

Even Druckenmiller admits the 20% is intellectually satisfying.

But the 80% is where the money is.

Stanley Druckenmiller on Volatility and Entries

Druckenmiller admits today’s markets are more violent:

“I'd rather just have nice, calm markets that move in a direction…”

But he makes clear volatility is not the problem:

“…it creates opportunities and you have to use the volatility as opposed to being abused by the volatility… you can't let yourself be a victim of volatility and you can take advantage of it.”

And the key line for traders:

“The violence that creates is more useful for entry points if it goes against what my belief over the given time frame is.”

For growth traders, that means:

If the stock is acting right overall, short term shakeouts and volatility can create better entries.

This is very O’Neil.

Strong stock. Proper setup. Volatility pulls it in. You execute.

Same trend. Better entry. Defined risk.

Volatility does not change the direction. It gives you a chance to get in correctly.

Stanley Druckenmiller on What He Learned from George Soros

One of the most important lessons Druckenmiller ever learned came from Soros.

He said:

“It's not whether you're right or wrong, it's how much you make when you're right and how much you lose when you're wrong.”

That is position sizing. That is asymmetric risk. That is the entire game.

You can be wrong a lot and still make a fortune.

What matters is:

• Pressing your winners

• Cutting your losers

• Never letting ego override risk

The amateurs obsess over being right.

The pros obsess over payoff.

Markets Pay Discipline, Not Genius

In Stanley Druckenmiller’s recent interview he said:

“My advantage is not IQ. It's trigger pulling.”

That shows up again and again in Market Wizards.

Many think you need to be a genius to win in markets.

You do not.

You need:

• Discipline

• Risk control

• Emotional stability

• The ability to act decisively

Druckenmiller even said he was not top of his class and that people think he is smarter than he is.

What separates the greats is not raw intelligence.

It is execution.

Emotional intelligence matters more than IQ in this game.

The market does not reward the smartest person in the room.

It rewards the one who can see it, size it, and pull the trigger without losing control.