Mark Minervini's Trend-Template -Stage 2 stock characteristics
Mark Minervini's Trend-Template is a technical analysis tool used by traders to identify stocks that are in strong uptrends. It's based on a set of criteria that a stock must meet to be considered in a healthy uptrend. The template is part of Minervini's broader trading strategy, which emphasizes risk management, buying strong stocks in strong markets, and selling quickly if the trade doesn't work out.
Here's an outline of the key criteria in Mark Minervini's Trend-Template:
1. Price Above the 150-Day and 200-Day Moving Averages (MA):
- The stock's price should be above both its 150-day and 200-day simple moving averages. This indicates that the stock has been in an uptrend for a significant period.
2. 150-Day Moving Average Above the 200-Day Moving Average:
- This shows that the medium-term trend is stronger than the long-term trend, reinforcing the idea of a healthy uptrend.
3. 200-Day Moving Average is Trending Up for at Least 1 Month:
- This ensures that the long-term trend is upward and that the stock has been performing well over an extended period.
4. Price is at Least 30% Above its 52-Week Low:
- This criterion helps to avoid stocks that have recently been in significant downtrends, ensuring that the stock has shown some strength.
5. Price is Within 25% of its 52-Week High:
- This indicates that the stock is relatively close to its peak, showing strength and momentum.
6. Relative Strength (RS) Rating of 70 or Higher:
- The RS rating measures how the stock has performed relative to the broader market over the past year. A rating of 70 or higher means that the stock has outperformed at least 70% of the market.
7. Current Stock Price is Trading Above its 50-Day Moving Average:
- This is a shorter-term trend indicator that suggests the stock is currently in an uptrend.
These criteria help traders focus on stocks that are not only trending upwards but also have strong relative strength, meaning they are outperforming the broader market. The template is particularly useful for momentum traders who want to capitalize on stocks with strong upward momentum.
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How to Calculate Relative Strength (RS) Rating
The Relative Strength (RS) rating, as used in Mark Minervini's Trend-Template, measures a stock's performance relative to other stocks in the market over a specific period, typically one year. This rating is often expressed on a scale from 1 to 99, where a higher number indicates stronger performance compared to other stocks.
How to Calculate Relative Strength (RS) Rating
The RS rating is calculated using a formula that compares the stock's price performance over a specific period (usually 12 months) to the performance of a benchmark index or the broader market. While the exact formula can vary depending on the source, a common method is to rank stocks based on their percentage price change over the past 12 months and then assign them a percentile rank.
Example of RS Rating Calculation
Let's walk through an example to understand how the RS rating works:
1. Step 1: Calculate the 12-Month Price Change
- Suppose Stock A's price was $100 a year ago and is $150 today. The 12-month price change is:
Price Change= [ (150-100) /100 ]×100% =50%
- Similarly, calculate the 12-month price change for a group of other stocks.
2. Step 2: Rank the Stocks
- After calculating the price change for all the stocks in the group, rank them from the highest to the lowest percentage change.
3. Step 3: Assign Percentile Ranks
- Suppose you have 1000 stocks in your group. If Stock A ranks 950th in terms of performance, its RS rating would be:
RS Rating= [950/1000]×100=95
This means that Stock A has outperformed 95% of the stocks in the group over the past year.
4. Step 4: Interpret the RS Rating
- An RS rating of 95 indicates that Stock A has been stronger than 95% of the other stocks, making it a top performer. In Minervini's Trend-Template, a stock with an RS rating of 70 or higher is considered strong and is a candidate for further analysis.
Application in Trading
Traders using Minervini's Trend-Template will typically look for stocks with an RS rating of 70 or higher, indicating that the stock has been performing better than 70% of all other stocks in the market over the past year. This helps traders focus on stocks with strong momentum, which are more likely to continue their upward trend.
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