Trading Model 11

Introduction

Trading Model 11 is a momentum trader specializing in stocks exhibiting long-term uptrends emerging from consolidation periods. Their approach combines technical analysis with a focus on relative strength, prioritizing stocks under accumulation with strong earnings and sales. The philosophy hinges on letting market conditions dictate exposure—scaling up when trades succeed and cutting losses swiftly when they don’t. This method avoids subjective predictions, relying instead on price action and disciplined risk management.

Key Concepts in Trading Model 11’s Method

Relative Strength (RS)

Relative Strength measures a stock’s price performance relative to the broader market or its sector. Trading Model 11 emphasizes that “the higher the RS, the better,” targeting stocks in the top 2–3% of RS for momentum trades. This metric helps identify leaders—stocks likely to outperform during market upturns. The method avoids laggards, as weak RS often signals underlying issues.

Breakouts

A breakout occurs when a stock’s price surpasses a defined resistance level, such as a trendline, prior high, or pivot point. Trading Model 11 looks for breakouts accompanied by volume confirmation, suggesting institutional interest. However, they acknowledge that “false breakouts are an inherent risk in trading breakouts,” emphasizing the need for strict stop-losses to mitigate losses when setups fail.

Consolidation Periods

After an uptrend, stocks often enter consolidation—a phase of sideways trading with narrowing price ranges. Trading Model 11 prefers consolidations with below-average volume, indicating a lack of distribution (selling pressure). These periods serve as “launchpads” for the next leg up, provided the stock maintains its long-term moving averages (200-day, 150-day, or 50-day).

Pyramiding

Pyramiding involves adding to winning positions using profits to finance additional shares. This tactic lets traders increase exposure while keeping risk in check. Trading Model 11 uses pyramiding to capitalize on strong trends but avoids averaging down—a cardinal rule in their system.

Dead Cat Bounce

A temporary recovery in a declining stock or market, often mistaken for a reversal. Trading Model 11 views these bounces as shorting opportunities, though they caution that “shorting is more difficult than buying” due to unlimited upside risk. Their method avoids shorting single stocks outright, favoring more controlled risk approaches.

Average True Range (ATR)

ATR measures volatility, helping set stop-losses outside normal price fluctuations. Trading Model 11 uses ATR in short-term futures trading to avoid being “stopped out” by noise. While the source data doesn’t specify exact ATR multiples, the principle is clear: stops should account for volatility to prevent premature exits.

Rules in Practice

1. Liquidity Threshold: Trading Model 11 avoids stocks averaging fewer than 25,000 daily shares. Thinly traded stocks pose slippage and execution risks.
2. Relative Strength Filter: Only the strongest stocks (top 2–3% RS) qualify for momentum trades, ensuring participation in market leaders.
3. Trend Confirmation: No trade is taken unless the stock is above its 200-day, 150-day, or 50-day moving average—a non-negotiable rule.
4. No Averaging Down: Adding to losing positions is prohibited. “I never average down on a stock,” as it compounds mistakes.
5. Position Sizing: Large positions and losers are cut immediately. The method prioritizes capital preservation over hope.
6. Disciplined Exits: Losses are automatic, with no emotional discretion. “I never deviate from discipline when it comes to taking losses.”

Lessons and Mistakes

Early Struggles and Refinement

Trading Model 11’s first year was break-even, teaching them that “having good ideas wasn’t enough.” Refinement and self-improvement were critical to later success, with risk-adjusted returns improving annually. A standout year—likely their best—demonstrated the payoff of disciplined execution.

The Pitfalls of Shorting

While shorting can be profitable, Trading Model 11 avoids it for single stocks due to unlimited risk. They note that “the best situations often look the scariest,” but shorting requires precision and timing that even experienced traders struggle with.

The Importance of Trade Tracking

“Your actual trading results have a wealth of information about you,” even if unprofitable. Trading Model 11 stresses meticulous record-keeping to identify patterns, refine strategies, and avoid repeating mistakes.

Market Integrity Concerns

Beyond tactics, Trading Model 11 critiques market structure, arguing that “the market ought to be a mechanism for fair and orderly price discovery.” They highlight how certain practices undermine this ideal, though the source data doesn’t delve into specifics.

Closing Thoughts

Trading Model 11’s method blends momentum, technical rigor, and unwavering discipline. By focusing on high-RS stocks in confirmed uptrends, managing risk through strict rules, and learning from every trade, they’ve distilled a repeatable process. Their journey underscores a broader truth: “Most people overestimate what they can do in two years and underestimate what they can do in ten years.” For retail traders, the lesson is clear—success comes from consistency, not shortcuts.