The Investment Process: From Leadership to Position Management

The process is built around a fairly simple objective: identify genuine market leadership, understand what may be driving it, wait for constructive price structure to develop, define risk at a logical level, and then stay involved long enough for an exceptional trend to actually matter.

Over time, my approach has become increasingly focused on intermediate and longer term opportunities in liquid equities, particularly companies showing strong relative strength within important themes and industries. One of the biggest changes in how I trade has been moving away from trying to find more opportunities and toward becoming much more selective about which opportunities deserve capital in the first place.

There are considerably more rules, screens, exceptions, and portfolio decisions involved than can reasonably fit into one article, so this is not meant to reproduce the entire trading plan. The goal is simply to explain how I narrow the market, how I use weekly and daily charts together, how I think about entry location and risk, and how I manage a position if a larger trend begins to develop.

At a high level, the process moves through market context, themes, leadership, weekly structure, daily structure, entry location, defined risk, and position management.

Narrowing the Market

The first step is not finding a trade. It is eliminating most of the market from consideration.

There are thousands of publicly traded companies, but only a relatively small number will show the combination of qualities I am looking for at any given time. I am heavily biased toward liquid market leaders with strong relative strength, healthy longer term trends, and clear evidence that institutions are involved. Within that group, the most attractive situations usually combine at least three of four characteristics: constructive technicals, strong or improving fundamentals, a meaningful catalyst, and a compelling narrative or theme.

That combination matters because the biggest trends usually have more behind them than a good looking chart. Strong technical action can attract attention initially, but sustained leadership often develops alongside a meaningful change in the business, investor expectations, or the environment surrounding the company.

NVDA during the emergence of the artificial intelligence infrastructure cycle is an obvious example. The stock was not simply benefiting from an exciting narrative. Revenue and earnings were accelerating at extraordinary rates while demand for accelerated computing was changing expectations for the company and the semiconductor industry more broadly.

SMCI experienced a similar dynamic during the early stages of the AI infrastructure buildout. CELH is a useful example outside of technology, where exceptional revenue growth, increasing distribution, and market share gains developed alongside persistent price leadership. More recently, SNDK has shown how improving fundamentals and demand within data center and memory markets can begin translating into significant relative strength.

The point is not that every attractive investment needs fundamental growth at those extremes. It is that my highest conviction opportunities usually occur when several independent forms of evidence begin reinforcing one another. A strong chart can work for a period of time on its own, but the situations I find most interesting usually have some fundamental or thematic reason for investors to continue revising expectations higher.

Because of that, I pay attention to things like scalable business models, revenue growth, improving margins, recurring revenue, pricing power, product cycles, earnings acceleration, and identifiable future catalysts. None of those things are enough from a timing standpoint, however, if the market is not confirming the thesis through price and volume.

That is where relative strength becomes particularly important. I am not necessarily trying to discover a company before anyone else has noticed it. In many cases, I would rather the market already be showing me that something important may be happening. Strength is evidence that capital is flowing toward the company, the theme, or both.

The screening process is therefore designed to continually narrow the universe. Relative strength, group leadership, constructive technical structure, volatility contraction, and other characteristics identify names worth studying further. Those names move through watchlists as the setups mature rather than automatically becoming trades simply because they appeared on a screen.

The goal is not to fill a watchlist with everything that looks interesting. It is to keep narrowing until only the best combinations of leadership, structure, and risk remain.

Market Context Without Making the Indexes the Strategy

The broader market matters, but I do not treat it as a binary switch.

The position of the major indexes relative to important moving averages provides useful context, as do accumulation, distribution, breadth, participation, and the success or failure of leading stocks. A healthy market with broad participation naturally supports taking more risk than one experiencing persistent distribution and repeated failures among leaders.

The indexes alone, however, do not tell the whole story. The Nasdaq or S&P 500 trading below a particular moving average does not automatically disqualify every individual opportunity, just as strong index performance does not necessarily mean attractive setups are everywhere.

I have learned to place a lot of weight on the behavior of the stocks themselves. The quality and quantity of setups appearing across the market, the success or failure of recent positions, and the relative strength of leading companies all help determine how aggressive or cautious I should be.

Corrections can actually make the search for leadership more useful. Companies that remain near their highs, resist distribution, hold important levels, or build tight bases while the broader market struggles are telling you something about underlying demand. Those names often become especially important when conditions begin improving again.

The broader environment therefore influences conviction and overall exposure, but I think it is best understood alongside the behavior of individual leaders rather than allowing the indexes to dictate every decision.

Themes Give Leadership Context

Relative strength becomes more meaningful when there is a reason behind it.

The strongest opportunities often appear when an individual leader sits within a larger theme or fundamental development capable of attracting sustained capital. The exact themes are always changing. What matters is whether there is a credible reason investor expectations could continue improving and whether the market is already beginning to recognize that change.

This is where narrative and price action meet. A compelling industry story may explain why investors could continue allocating capital to an area, but price and volume show whether they are actually doing it. When an important theme, improving fundamentals, a catalyst, and sustained relative strength begin reinforcing one another, the opportunity becomes considerably more interesting.

I am therefore not simply looking for strong stocks. I am looking for leaders in areas of the market where there is a credible reason for that leadership to persist.

The Role of the Weekly Chart

Once leadership has been identified, the weekly chart provides perspective that is difficult to get from shorter timeframes.

Before worrying about an exact entry, I want the larger structure to justify owning the stock at all. The preferred candidate is generally already in a healthy longer term trend, with rising moving averages, evidence of meaningful demand during prior advances, and pullbacks that remain constructive rather than destructive.

I strongly prefer mature, tight consolidations following prior strength. Wide, loose, early stage bases are generally less attractive because they provide less clarity around risk and often show that the battle between buyers and sellers has not fully resolved. When an established leader begins tightening after a prior advance, that is when I start paying closer attention.

The weekly chart also helps prevent normal daily volatility from becoming more important than it should be. Strong intermediate term trends rarely move in straight lines, and looking at the larger timeframe makes it easier to distinguish a normal consolidation from genuine deterioration.

The relationship between the weekly and daily charts is fairly straightforward. The weekly chart helps answer whether I would want to own the company if the right opportunity develops. The daily chart helps answer whether the current structure offers an attractive place to establish that exposure.

Finding the Entry on the Daily Chart

The daily timeframe is where most actionable setups develop.

A recurring concept in the strategy is the relationship between expansion and contraction. Strong stocks advance, digest those gains, experience a reduction in volatility, and eventually attempt another expansion. I would much rather participate while the stock is contracting and risk is still easy to define than chase after the next move has already become obvious.

My preferred structures generally fall into two categories. The first is a constructive pullback in an established leader toward an important support area, particularly the 50 day SMA or its weekly equivalent, the 10 week moving average. The second is a mature consolidation following prior strength, including tight bases, volatility contraction patterns, squeezes, and launchpad type formations where price and important moving averages begin compressing before another potential move.

Volume drying up during a consolidation can indicate that selling pressure is diminishing, while repeated support around important moving averages or prior price levels can help define the setup. I am not simply looking for a stock that has fallen toward a moving average. I want a liquid leader whose pullback remains orderly within a larger intact trend.

The 21 day EMA is still very useful for shorter consolidations and for managing developing trends, while the 50 day SMA, 10 week moving average, prior breakout levels, base lows, and other structural areas can provide attractive locations for establishing longer term exposure. Regardless of the specific setup, I want the entry close enough to a meaningful invalidation point that my initial risk can remain tightly defined.

This is also where the difference between identifying a great company and finding a great trade becomes important. NVDA can be an exceptional company with an exceptional long term thesis and still offer a poor entry if price has become excessively extended from support. Fundamental conviction does not remove the importance of entry location.

I will often establish exposure inside a mature base on a tight day near support rather than waiting until a breakout has already carried the stock significantly higher. If the stock begins confirming the thesis through stronger price and volume, additional exposure can be added. I would rather have the market prove the idea right before committing more capital than start with maximum exposure and hope.

The objective is not to buy weakness simply because something looks inexpensive, nor is it to chase strength once the distance to a logical stop has become excessive. The ideal situation is a strong stock that has temporarily contracted into an area where downside can be clearly defined.

Using Lower Timeframes for Execution

The strategy is primarily driven by weekly and daily charts, but there are situations where the 15 minute or 30 minute timeframe can improve execution.

The important point is that the larger setup has to exist first. The company has already qualified based on leadership, theme, higher timeframe structure, and overall risk and reward. The shorter chart is then used to refine execution around an important daily level.

A leader pulling into the daily 21 day EMA may begin forming a tight intraday range. Another stock may reclaim an important daily support level and successfully retest it. A breakout attempt may begin with significant volume, but a lower timeframe can sometimes provide a cleaner entry without chasing the initial move.

The lower timeframe is there to refine an opportunity, not create one. An attractive 15 minute pattern means very little to me if the daily and weekly structure does not already support the trade.

Risk and Position Construction

Risk management begins before the position is entered.

Part of what makes an opportunity attractive is whether there is a logical level where I can say the setup is wrong. Stops are therefore based on technical structure and volatility rather than an arbitrary percentage. A base low, swing low, important moving average, or another meaningful price level may provide the point of invalidation. ATR is useful because different securities naturally experience very different levels of volatility.

As a general portfolio constraint, the intended loss at the initial stop on a single position should represent less than 2 percent of total portfolio equity. The actual amount of capital invested can therefore vary significantly depending on how close the entry sits to the point of invalidation.

That distinction between position size and actual portfolio risk is central to how I think about concentration.

Concentration as a Feature

The portfolio is intentionally concentrated.

I do not see much value in owning a large number of securities simply for the appearance of diversification. I would rather reserve capital for a smaller number of situations where leadership, theme, structure, catalyst, and risk and reward are all compelling.

That concentration is possible in part because entry location receives so much attention. A meaningful position established during a tight consolidation close to a logical invalidation point may carry considerably less intended portfolio risk than a much smaller position purchased after the stock has already become extended.

Consider the same leader at two different points in its trend. After a major breakout, the nearest technically sensible stop may sit far below the current price, which means maintaining acceptable portfolio risk requires a smaller position. During a mature consolidation close to support, however, the distance between entry and invalidation can be much smaller. More capital can potentially be deployed while keeping the loss at the stop within the same portfolio risk limit.

That is why I do not view capital concentration and risk concentration as the same thing.

Concentration also forces selectivity. If the portfolio is only going to contain a limited number of meaningful core positions, every new idea has to compete for capital. An average setup has very little reason to be owned simply because cash is available.

This has become an increasingly important lesson for me. Some of the most damaging trades are not obviously terrible ideas. They are mediocre opportunities taken in between the genuinely exceptional ones. Every unnecessary position consumes risk, attention, and capital that could otherwise remain available for something much better.

A concentrated framework naturally raises the hurdle for what deserves inclusion in the portfolio.

There are still risks that technical stops cannot eliminate. Correlated positions can effectively become one large exposure when an entire theme reverses. Earnings, unexpected news, or overnight gaps can move through intended stop levels, and liquidity can change quickly during periods of stress. Those risks make correlation, catalysts, liquidity, and total portfolio exposure important even when the individual setup itself offers tightly defined risk.

Concentration is therefore not based on the assumption that tight stops make risk disappear. It is based on the idea that precise entry location, clearly defined invalidation, and a high degree of selectivity allow capital to be concentrated more intelligently.

Letting Exceptional Trends Develop

The strategy ultimately depends on allowing the best positions to matter.

Not every trade will work, and trying to eliminate losing trades entirely would probably mean eliminating many of the opportunities capable of becoming significant winners. Small losses are part of repeatedly testing whether a potential leader is ready to begin another expansion. The goal is to contain those ordinary failures while maintaining enough exposure to the strongest winners for them to make a disproportionate contribution over time.

This is also one of the hardest parts of trend following in practice. Exceptional stocks rarely advance without volatility. There will be pullbacks, consolidations, negative headlines, and periods when giving back some open profit feels uncomfortable. Once a position begins working, the challenge gradually changes from protecting the original downside to staying involved without allowing normal volatility to force an unnecessary exit.

Daily price structure and moving averages can help manage a developing position, while weekly structure becomes increasingly important as the trend matures. I commonly use the 21 day EMA as a reference for developing positions, while the 10 week moving average and broader weekly structure can become more important once a trend has developed over a longer period.

The character of the individual stock matters as well. Some leaders trend relatively smoothly along shorter term moving averages, while others routinely experience much wider swings without materially damaging the larger trend. I have learned that position management has to account for both timeframe and volatility rather than assuming every leader should be managed exactly the same way.

The goal is not to tolerate unlimited downside. It is to avoid using an exit methodology that is fundamentally incompatible with the normal behavior of the security being held.

The exact moving average matters less than the principle behind it. Weak positions should lose the ability to consume capital relatively quickly, while exceptional positions should earn more time and flexibility as they continue proving themselves.

That principle is especially important because the entire strategy is built around trying to find unusual leaders in the first place. If those leaders are repeatedly sold after ordinary gains, much of the reason for taking the initial risk disappears. The largest trends can compensate for many small failures, but only if the portfolio stays involved long enough for those trends to become meaningful.

The Framework in Practice

The strategy is best understood as a process of progressively narrowing uncertainty.

The broader market establishes context without dictating every decision. Themes identify areas where sustained capital flows may be developing. Relative strength helps identify the companies receiving that capital, while fundamentals and catalysts provide context for why the leadership may persist. Weekly charts reveal whether the larger trend and structure are attractive, and daily charts create opportunities to establish exposure near logical risk levels. Lower timeframes can occasionally refine execution, while position size is ultimately determined by the distance to invalidation and the amount of portfolio equity I am willing to place at risk.

Once a position begins working, the objective gradually changes from protecting the initial trade toward preserving participation in the larger trend.

There are additional rules governing screening, watchlist construction, portfolio heat, correlation, catalysts, entries, exits, exceptions, and ongoing review that are intentionally not covered here. The purpose of this framework is to explain how the pieces fit together rather than reproduce the entire operating manual.

The objective is not to predict every move, own every strong stock, or remain fully invested simply because the market is rising. Over time, my process has actually moved in the opposite direction. I want to wait for situations where several independent forms of evidence begin aligning, where leadership is clear, the underlying opportunity has context, price structure is constructive, downside can be defined, and the potential trend is significant enough to justify taking risk.

When those conditions are present, meaningful concentration can make sense. When they are absent, patience is not just part of the strategy. Patience is the edge.