Secrets for Profiting in Bull and Bear Markets
Stan Weinstein
Introduction
Stan Weinstein, author of Secrets for Profiting in Bull and Bear Markets, is a technical analyst whose methodology revolves around price action, chart patterns, and relative strength. His philosophy—“the tape tells all”—emphasizes letting market movements dictate trading decisions rather than relying on fundamentals or emotions. Weinstein’s approach is systematic, using tools like the 30-week moving average, stage analysis, and relative-strength lines to identify high-probability trades in any market condition. His rules are designed to keep traders aligned with the trend while avoiding common pitfalls like premature entries or ignoring volume signals.
Key Concepts in Weinstein’s Methodology
The 30-Week Moving Average
Weinstein’s 30-week moving average (MA) is a weighted average, making it more responsive to recent price activity than a simple MA. This sensitivity helps it reverse direction faster, though it occasionally produces whipsaws. Despite this, its long-term nature keeps signals reliable. The MA acts as a trend filter: stocks above a rising 30-week MA are candidates for long positions, while those below a declining MA are avoided or shorted. As Weinstein puts it, “Never buy a stock—no matter how cheap it appears—if it is trading below its declining 30-week MA.”
Long-Range Background
The “long-range background” refers to yearly high-low figures, often displayed in the lower left corner of Mansfield charts. This contextualizes current price action by showing whether a stock is in “virgin territory” (no historical resistance/support) or near levels that could stall its movement. For example, a stock approaching multi-year resistance may struggle to break higher, while one breaking into uncharted territory could see accelerated gains.
Relative-Strength Line
Weinstein’s relative-strength (RS) line compares a stock’s performance to the broader market. A rising RS line (especially one crossing into positive territory) signals outperformance, while a declining line suggests weakness. Crucially, he warns against buying breakouts if the RS line is downtrending, as it indicates the stock is lagging the market. Conversely, avoid shorting breakdowns if the RS line is rising—the stock may still be stronger than the market.
Head-and-Shoulders Patterns
The head-and-shoulders (H&S) pattern is a key reversal signal. A top formation (bearish) consists of a left shoulder, higher head, and right shoulder, with a neckline acting as support. Breaking below the neckline confirms the pattern and projects further downside. Weinstein notes that “the bigger the top, the bigger the drop,” emphasizing the importance of scale in these formations. For bottoms, an inverse H&S breaking above the 30-week MA is particularly reliable.
The Swing Rule
This simple projection tool estimates price targets. For a downtrend, subtract the low (point A) from the high (point B), then subtract that difference from the low to get a target. For example, if a stock peaks at $100 (B) and drops to $80 (A), the swing rule projects a $60 target ($80 – ($100 – $80)). While not exact, it helps gauge risk-reward.
Stage Analysis
Weinstein categorizes stocks into four stages:
- Basing Area (Stage 1): Sideways consolidation after a decline.
- Advancing Stage (Stage 2): Uptrend confirmed by breaking above the 30-week MA.
- Top Area (Stage 3): Distribution after a rally, often with volatile price action.
- Declining Stage (Stage 4): Downtrend below the 30-week MA.
The goal is to buy late in Stage 1 or early Stage 2 and exit in Stage 3, avoiding Stage 4 entirely.
Rules in Practice
Weinstein’s rules are designed to enforce discipline. Here’s how they translate to trading:
- Trend Alignment: Never buy below a declining 30-week MA or short above a rising one. This keeps traders on the right side of the trend.
- Relative Strength Confirmation: Ignore breakouts if the RS line is weak, and avoid shorting breakdowns if the RS line is strong. This filters false signals.
- Volume Matters: Poor volume on a breakout suggests weak participation, increasing the odds of failure. Always check volume.
- Pattern Reliability: Prioritize head-and-shoulders reversals, especially when they coincide with MA breaks.
These rules eliminate subjective judgments, forcing traders to rely on objective criteria.
Lessons and Mistakes
Weinstein’s lessons highlight common trader errors:
- Impatience: “Premature investors often sell after months of sideways action right before the big move starts.” Waiting for confirmed breakouts is key.
- Overleveraging: Losing 15–20% on a single trade requires disproportionately larger gains to recover. Risk management is non-negotiable.
- Rumors vs. Reality: “For every one rumor that turns out to be true, hundreds end in Stage 4 downtrends.” Stick to the chart’s message, not hype.
- Diversification: “Don’t put all your eggs in one basket” — but avoid over-diversifying, which dilutes returns.
His blunt observation—“the market will do whatever is necessary to keep the majority from making money”—underscores why discipline matters.
Closing Thoughts
Weinstein’s system is a masterclass in trend-following, combining clear rules (like the 30-week MA filter) with nuanced tools (RS lines, stage analysis). By focusing on price action and avoiding subjective biases, traders can sidestep the pitfalls that ensnare most investors. His methodology isn’t about predicting the market but reacting to its signals—proof that, as he says, “the tape tells all” for those willing to listen.