29Mar, 2025
Summary of Trade Like a Stock Market Wizard by Mark Minervini

Mark Minervini’s Trade Like a Stock Market Wizard offers a proven framework for achieving superperformance in stocks, based on his remarkable track record of compounding 33,500% over five years.

The book emphasizes a disciplined, business-like approach, blending his Specific Entry Point Analysis (SEPA) strategy with Stan Weinstein’s stage analysis, and stresses emotional control, precise timing, and risk management.

Foundations for Success

Minervini lays the groundwork for success:

  • Winning Strategy and Desire: A robust method and fierce determination are essential.
  • Positive Environment: Surround yourself with supportive people and shun naysayers.
  • Emotional Discipline: Control ego and emotions—treat trading as a business for consistent profits.
  • Business Approach: Execute trades with professionalism, and results will mirror a successful enterprise.

SEPA Strategy: Entry Points and Stock Selection

SEPA targets stocks poised for rapid gains by merging technical precision with fundamental catalysts:

  • Stock Selection:
  • Prioritize small- to mid-cap stocks with high relative strength (RS 70+, ideally 80s-90s).
  • Seek accelerating earnings/sales, future earnings surprises, and institutional backing.
  • Don’t dismiss high P/E stocks—look for catalysts like new products, management shifts, capex, or geographic expansion.
  • Technical Entry:
  • Buy on breakouts from consolidations (e.g., Volatility Contraction Pattern – VCP) or in uptrends (never below the 200-day moving average).
  • Use the Trend Template: price above rising 150-day and 200-day moving averages, 50-day above 150-day, within 25% of 52-week high, and 30%+ above 52-week low.
  • Pivot Point: The optimal buy point after a base forms—price breaks above the pivot with tight action and volume drying up, followed by a surge on strong volume.
  • Pivot Point Volume: Volume contracts significantly (often below 50-day average) before the breakout, with one or two days of extremely low volume signaling reduced supply. On the breakout, volume spikes (e.g., 300-1,000% of average), confirming demand.
  • Shakeouts: Within bases, price drops below support (e.g., undercutting a prior low) shake out weak holders. Wait for a rally on big volume post-shakeout to confirm strength before buying—don’t chase declines.
  • Overhead Supply: Avoid stocks with trapped buyers from prior highs waiting to sell at breakeven. VCP reduces this by absorbing supply—buy on the right side of the base as contractions tighten.
  • Deep Correction Patterns: Stocks down 50-70%+ signal fundamental issues or bear markets and carry heavy overhead supply. Stick to corrections of 10-35% (or 2-3 times market decline)—deep declines are failure-prone.

Stage Analysis

  • Stage 1 (Basing): Sideways movement around the 200-day moving average—no trend. Don’t buy—wait for Stage 2.
  • Stage 2 (Advancing): Uptrend begins with higher highs/lows, above a rising 200-day moving average, volume spikes on up days, and light pullbacks. Buy at the start.
  • Transition to Stage 2: Price above 150-day and 200-day moving averages, 150-day above 200-day, 200-day trending up, prior 25-30% rally off 52-week low.
  • Stage 3 (Topping): Volatility rises, momentum fades, high-volume pullbacks signal distribution—sell here.
  • Stage 4 (Declining): Downtrend with lower highs/lows, below a declining 200-day moving average—avoid buying.

Patterns and Timing

  • VCP: Tightening price ranges (e.g., 22% to 8% to 2%) with volume contraction signal accumulation. Buy on the breakout from the pivot.
  • Power Play: 100%+ surge in <8 weeks, followed by a tight 20-25% correction over 3-6 weeks—buy on breakout with VCP traits.
  • Squats and Reversal Recovery: Post-breakout, a stock may “squat” (fall back into its range) but recover within days (up to 10 in a bull market). Hold unless it breaches the 20-day moving average or stop loss—give it room if volume subsides and action tightens.

Risk Management

  • Stop Losses: Set a max 10% (typically 6-7%) stop before entry—exit instantly if hit. Tighten to 5-6% in tough markets.
  • Profit Protection: Move stop to breakeven or trail it after a gain 2-3 times your risk (e.g., $2.50 risk to $7.50 gain).
  • Reentry: If stopped out, reassess—stocks can reset stronger. Don’t let ego block reentry if criteria align.
  • Losing Streaks: Scale down (e.g., 5,000 to 1,000 shares)—check selection flaws or market hostility. Don’t trade bigger to recover.
  • Squats Handling: Post-squat, wait for reversal recovery unless stop is triggered—avoid panic selling on early reversals.

Position Sizing

  • Concentrated Holdings: 4-6 stocks (up to 10-12 for larger portfolios), max 20—avoid over-diversification.
  • Scaling In: Start with pilot buys (e.g., 2%), add (e.g., 2% more) on confirmation—never average down.
  • Optimal Size: 25% per position (4 stocks) balances risk and reward for big winners.

Exit Strategy

  • Sell into Strength: Exit during rapid rises or early weakness post-run—don’t wait for earnings to sour.
  • Sell into Weakness: Exit on major price breaks (largest decline since Stage 2) or when undercutting the 200-day moving average with volume.
  • Trust Charts: Price action trumps hype—stocks like Vicor and Crocs fell 70%+ before earnings reflected issues.
  • Stage 3 Exit: High volatility, erratic moves, and high-volume pullbacks signal time to sell.

What to Do

  • Target Leaders: Focus on top 2-3 stocks in leading sectors with rapid EPS/revenue growth.
  • Buy Breakouts: Enter at pivot points in Stage 2 with volume confirmation—post-shakeout rallies are ideal.
  • Monitor Drift: Act on post-earnings strength.
  • Prepare: Plan for disasters (e.g., predefined stops, backups).
  • Limit Losses: Keep them small (5-7%) for quick recovery.

What Not to Do

  • Don’t Average Down: Only add to winners—losers drain capital.
  • Don’t Buy Stage 1/4: Avoid basing or declining stocks.
  • Don’t Over-Diversify: Too many positions dilute gains.
  • Don’t Ignore Trends: Never buy below 200-day moving average or fight institutions.
  • Don’t Chase: Wait for pivot confirmation—preemptive buys add risk.
  • Don’t Cling to Deep Corrections: Heavy overhead supply kills rebounds.
  • Don’t Panic on Squats: Give reversal recovery a chance unless stops are hit.

Key Insights

  • Superperformance: These stocks resist bear market declines and lead recoveries—past leaders rarely repeat.
  • Market Alignment: Stage 2 thrives in bull markets.
  • Discipline: Small losses and big wins require unemotional execution.

Thank You for reading , Follow me at Surajit Bhowmik (Founder ,kinginvestment.in, NISM Certified Equity Research Analyst , Investing since 2017)

For Guide in Mutual Fund Investing Contact Mr Suman Bhowmik

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