Based on Mark Minervini, Trade Like a Stock Market Wizard: How to Achieve Super Performance in Stocks in Any Market (2013)
Mark Minervini is a self-taught trader who turned a few thousand dollars into millions over the course of his career. His audited track record includes:
Minervini did not attend business school, did not work on Wall Street, and had no financial industry connections. He built his methodology entirely through self-study — analyzing thousands of historical stock charts, reading every market book he could find, and systematically documenting what worked and what did not over nearly a decade before achieving consistent profitability.
SEPA is the name Minervini gives to his complete trading methodology. The acronym reflects the system's core emphasis: the exact point at which you enter a trade matters enormously. SEPA is not about finding "good stocks" in a general sense — it is about identifying the precise moment when a stock with the right characteristics is most likely to begin a significant price advance.
SEPA integrates four domains into a single unified system:
1. FUNDAMENTALS — Is the company growing earnings, revenue, and margins at an accelerating rate?
2. TECHNICALS — Is the stock in a confirmed Stage 2 uptrend with a proper base pattern?
3. TIMING — Is the stock at or near a specific low-risk entry point (pivot)?
4. RISK CONTROL — Can you define a stop-loss that limits loss to a small, predetermined amount?
All four must align simultaneously. A stock with great fundamentals in a Stage 4 decline is not a buy. A stock with a perfect chart but deteriorating earnings is not a buy. A stock that passes every filter but has no definable low-risk entry point is not a buy — yet. You wait.
Minervini studied every stock that made a gain of 200% or more over any rolling 2-year period going back to the 1880s. The research — covering over a century of market history and thousands of individual stocks — revealed that superperformance stocks share a remarkably consistent set of characteristics before they make their biggest moves:
The central insight: You do not need to predict which stocks will become superperformers. You need to recognize the characteristics they display when they are becoming superperformers, and position yourself at the right time.
Most amateur traders ask: "How much can I make?" Minervini asks: "How much can I lose?" The distinction is foundational.
Every stock cycles through four distinct stages. Recognizing which stage a stock is in is the single most important skill a trader can develop, because it determines whether you should buy, hold, sell, or avoid the stock entirely.
Characteristics:
Moving Average Relationships:
Price ≈ 50-day MA ≈ 150-day MA ≈ 200-day MA (all clustered, flat or declining)
What to do: Nothing. Watch. Do not buy. There is no way to know how long Stage 1 will last. It could be 6 months or 6 years. Buying here is an opportunity cost trap — even if you are "right" about the company, your capital is dead while you wait.
Characteristics:
Moving Average Relationships:
Price > 50-day MA > 150-day MA > 200-day MA (all trending up, properly stacked)
What to do: This is the ONLY stage in which you should buy. All SEPA entries occur during Stage 2. The goal is to buy during Stage 2 when the stock forms a proper base pattern (VCP) and breaks out from a specific pivot point.
Duration: Stage 2 advances typically last 1-4 years for the biggest winners. During this phase, the stock may advance 100% to 1000% or more, punctuated by periodic consolidations (bases) that provide re-entry opportunities.
Characteristics:
Moving Average Relationships:
Price oscillates around 50-day MA; 150-day and 200-day begin to flatten
MAs start to converge and tangle (no clean stacking order)
What to do: Sell. If you own the stock, sell into strength (offensive selling). Do not wait for the decline to begin. Do not rationalize — "it's just pulling back." Recognize the topping signals and protect your profits.
Characteristics:
Moving Average Relationships:
Price < 50-day MA < 150-day MA < 200-day MA (all declining, inverse stacking)
What to do: Absolutely nothing. Never buy. Never try to "bottom-fish." Never try to catch falling knives. A Stage 4 stock is falling because large holders are liquidating, and you have no edge against that selling pressure. Eventually the stock may form a Stage 1 base — and the cycle repeats.
Stage 3: Topping
┌──────/\──────┐
/ / \ \ \
/ / \ \
/ / \ \
Stage 2: / / (wide, \ \ Stage 4:
Advancing/ volatile \ Declining
/ swings) \
/ \
/ \
─────────────/ \──────────────
Stage 1: Neglect/ Stage 1:
Accumulation Next cycle
(flat, low volume) begins...
The overwhelming majority of amateur traders make one of two catastrophic errors:
Buying in Stage 4 ("it's cheap, it's a bargain"): The stock is cheap for a reason. It is being actively sold by informed investors. Buying here is standing in front of a freight train.
Buying in Stage 3 ("it's been going up, it'll keep going"): The stock is being distributed by the same institutions that accumulated it in Stage 1. You are the exit liquidity.
By restricting all purchases to Stage 2 — and further, to stocks that have formed a proper base within Stage 2 — Minervini eliminates the vast majority of losing trades before they happen.
The Trend Template is Minervini's quantitative screen for identifying stocks in a confirmed Stage 2 uptrend. It is a pass/fail checklist: a stock must satisfy ALL eight criteria simultaneously to qualify. There are no partial scores. No exceptions. No discretion.
What it means: The stock's current closing price is trading above the average of the last 150 daily closing prices.
Why it matters: The 150-day MA represents the intermediate-term trend. If price is below this line, the intermediate trend is down or, at best, transitioning. A stock below its 150-day MA is either in Stage 1 (basing), Stage 3 (topping with MA catch-up), or Stage 4 (declining). None of these are buyable.
Implementation note: Use the simple moving average (SMA), not exponential. Minervini's historical research was conducted using SMAs.
What it means: The stock is trading above its long-term trend line.
Why it matters: The 200-day MA is the most widely followed indicator of a stock's long-term trend. Institutional investors — the players with the most capital and the most influence on price — pay close attention to this level. A stock below its 200-day MA is, by broad consensus, in a long-term downtrend. You are swimming against the current.
The 150-day and 200-day together: Criteria 1 and 2 together ensure that the stock is above both its intermediate and long-term trend lines. This is the minimum condition for a Stage 2 uptrend.
What it means: The intermediate-term trend is stronger than (ahead of) the long-term trend.
Why it matters: When the 150-day MA is above the 200-day MA, it means the stock's more recent price action (last 30 weeks) has been consistently higher than its longer-term average (last 40 weeks). This is a structural confirmation that the trend is accelerating, not decelerating. If the 150-day is below the 200-day, the stock may be above both MAs temporarily — a bounce within a downtrend, not a genuine Stage 2 advance.
Relationship to "golden cross": The 150/200-day crossover is similar in concept to the popular 50/200-day "golden cross," but Minervini uses the 150-day because it filters out more false signals while still capturing Stage 2 transitions early enough to be actionable.
What it means: The 200-day MA itself (not just the price relative to it) must have a positive slope. It must have been rising for at least 20 trading days, and ideally 80-100+ trading days.
Why it matters: This is the criterion that most aggressively filters out false Stage 2 signals. A stock can have price above its 200-day MA while the 200-day itself is still declining — this typically occurs during a sharp bear market rally or a short squeeze within a broader downtrend. The 200-day MA is a lagging indicator; by requiring it to be rising, you ensure that the long-term trend has genuinely turned. The longer it has been rising, the more established and reliable the uptrend.
How to assess "trending up": Compare the current 200-day MA value to its value 1 month ago (approximately 20 trading days). If today's value is higher, the condition is met for the minimum. For the ideal 4-5 month threshold, compare to the value approximately 100 trading days ago.
What it means: The short-term trend leads the intermediate and long-term trends higher.
Why it matters: When the 50-day is stacked above the 150-day, which is above the 200-day (criterion 3 covers the 150/200 relationship), you have "proper stacking" — the hallmark of a healthy, established Stage 2 uptrend:
PROPER STACKING (required):
Price > 50-day MA > 150-day MA > 200-day MA
↑ ↑ ↑
Short-term Intermediate Long-term
(fastest) (medium) (slowest)
If the 50-day falls below the 150-day, it signals that short-term momentum is fading — the stock may be transitioning to Stage 3. This is an early warning.
What it means: The stock is trading above its short-term trend line.
Why it matters: Even within a Stage 2 uptrend, a stock trading below its 50-day MA is in a short-term pullback or correction. While this is normal and healthy during an advance, it is NOT the time to initiate a new position. Minervini wants to buy when the stock is demonstrating short-term strength — price above the 50-day — ideally breaking out of a VCP base at or near a new high.
Exception context: A stock pulling back to its 10-week (50-day) MA during Stage 2 may offer a potential entry in specific circumstances, but Minervini's primary method is to buy at the breakout pivot, which by definition occurs above the 50-day.
What it means: (Current Price - 52-Week Low) / 52-Week Low >= 0.25
Why it matters: A stock that is only 10% above its 52-week low is likely still in Stage 1 or early transition. It has not yet demonstrated the price momentum that characterizes a Stage 2 advance. The 25% threshold ensures the stock has already shown meaningful upward movement.
In practice, most superperformance candidates are 100-300% or more above their 52-week low by the time they form the best bases. Do not be afraid of stocks that have "already gone up a lot." The biggest winners often have the largest prior advances before their best entry points appear.
Common mistake to avoid: Many traders erroneously believe that a stock that has risen 100% "has to come back down." This is anchoring bias. Superperformance stocks routinely rise 500%, 1000%, or more from their Stage 1 lows. The 25% minimum is a floor, not a ceiling.
What it means: (52-Week High - Current Price) / 52-Week High <= 0.25
Why it matters: A stock that has fallen 40% from its 52-week high is likely in Stage 3 or Stage 4 — it is in a downtrend from its peak. By requiring the stock to be within 25% of its high, Minervini ensures that the stock is demonstrating relative strength and is trading near "new high territory." The closer to the 52-week high, the better — stocks making new 52-week highs while meeting all other criteria are the strongest candidates.
The concept of "base within a base": Often the best setups are stocks that are within 10-15% of their all-time highs, consolidating in a tight range (VCP) before breaking to new highs. They are NOT 20-25% below the high; they are 5-10% below it.
The eight criteria work together as a composite filter. Any single criterion is insufficient — many declining stocks will temporarily satisfy 4 or 5 of the eight during bear market rallies. The power of the template is that requiring ALL eight simultaneously eliminates almost all false signals.
How many stocks typically pass? In a healthy bull market, approximately 15-25% of stocks may pass all eight criteria. In a bear market, the number drops to 2-5% or less. This is a feature, not a bug. When very few stocks pass, the market is telling you that the environment is hostile. Raise cash.
The Trend Template can be implemented as a programmatic screener. Every evening after the market close, run the screen against the full universe of stocks (all NYSE, NASDAQ, AMEX issues with sufficient liquidity — typically minimum $10 price and 100K average daily volume). The output is your "qualified universe" — the stocks that are structurally eligible for purchase. From this list, you then look for proper base patterns (VCP) to identify specific trade candidates.
The VCP is Minervini's signature contribution to technical analysis. It is the base pattern he identified through his study of thousands of historical superperformance stocks. The VCP describes the specific way supply and demand shift within a consolidation pattern to create a low-risk, high-reward entry point.
After a stock advances during Stage 2, it periodically pauses to consolidate. This consolidation is necessary and healthy — it allows the stock to:
The base is not a random sideways pattern. In superperformance stocks, bases display a very specific structure: the Volatility Contraction Pattern.
The defining characteristic of the VCP is that each successive swing within the base shows:
This creates a series of contractions — typically 2-4 contractions (sometimes more) — that visually resemble a tightening coil or funnel.
VCP VISUAL DIAGRAM
Price
│
│ T1 (25%) T2 (12%) T3 (6%) T4 (3%)
│ ╱╲ ╱╲ ╱╲ ╱╲
│ ╱ ╲ ╱ ╲ ╱ ╲ ╱╲ ← PIVOT
│ ╱ ╲ ╱╲ ╱ ╲ ╱╲ ╱ ╲ ╱╲ ╱
│╱ ╲ ╱ ╲ ╱ ╲ ╱ ╲╱ ╲ ╱ ╲╱
│ ╲ ╱ ╲ ╲╱ │ ╲╱ │
│ ╲╱ │ │ │ │ │
│ │ │ │ │ │ │
│ 1st swing │ 2nd swing │ 3rd swing │
│ │ │ │ BREAKOUT
│ on VOLUME
└──────────────────────────────────────────────────────── Time
Volume:
███████ ██████ ████ ██ ████████████
(high) (less) (less) (DRY-UP) (SURGE on breakout)
Typical contraction sequence (measured as maximum pullback % from each swing's high):
| Contraction | Typical Range | Description |
|---|---|---|
| T1 | 20-35% | Initial correction after the advance. This is the deepest pullback. |
| T2 | 10-15% | Second contraction. Noticeably shallower than T1. |
| T3 | 5-8% | Third contraction. Very tight. Weak holders have been flushed. |
| T4 | 2-4% | Final contraction (if present). Almost no volatility remains. |
The specific numbers are guidelines, not rules. The key principle is that each successive contraction must be smaller than the previous one. A pattern showing 20% → 18% → 15% is NOT a VCP — there is no meaningful contraction. A pattern showing 25% → 12% → 6% IS a VCP — each swing is roughly half (or less) of the previous one.
What contracting volatility means: Each successive pullback is smaller because the sellers are being exhausted. In T1, many holders sell — some for profit, some from fear. In T2, fewer holders remain who are willing to sell at these prices. By T3 and T4, the remaining holders are almost exclusively strong-handed institutions who are not selling. The stock has been transferred from "weak hands" (who sell on any dip) to "strong hands" (who accumulate and hold).
This is one of the most important confirming signals in the entire system:
Think of it like this: The VCP is a process of wringing out all the selling. The volume dry-up is confirmation that the wringing is complete. The breakout volume surge is the demand hitting a market with no supply.
The pivot (also called the "buy point") is the specific price level at which the stock breaks out of the VCP pattern. It is defined as:
The pivot is NOT:
The pivot is a precisely identifiable price level that, when exceeded on a surge in volume, signals that demand has overwhelmed the last remaining supply and the stock is ready to advance.
Identifying the pivot in practice:
Not all bases are created equal. Minervini tracks the "base count" — which number base this is within the current Stage 2 advance:
1st Stage Base (Most reliable)
2nd Stage Base (Still reliable)
3rd Stage Base (Use caution)
4th Stage Base (High risk — generally avoid)
Rule of thumb: The earlier the base count, the better the odds. Concentrate your capital on 1st and 2nd stage bases. Be selective and cautious with 3rd stage bases. Avoid 4th stage bases.
The VCP is not just a chart pattern to memorize — it is a visual representation of a fundamental shift in the supply and demand dynamics of a stock:
SUPPLY/DEMAND DYNAMICS THROUGH THE VCP
T1 (Deep pullback, high volume):
SUPPLY ████████████████ Many holders willing to sell — profit-taking,
DEMAND ████████ fear, stop-losses all creating selling pressure.
T2 (Shallower pullback, less volume):
SUPPLY ██████████ Fewer sellers remain at this level.
DEMAND ██████████ Buyers start to match sellers (equilibrium).
T3 (Tight contraction, low volume):
SUPPLY ████ Almost no one left willing to sell at this price.
DEMAND ████████████ Institutional buyers are absorbing remaining supply.
PIVOT BREAKOUT (Surge in volume):
SUPPLY ██ Virtually no supply.
DEMAND ████████████████ Demand surges. Price moves rapidly because there are
no sellers to absorb the buying pressure.
The standard SEPA entry is:
Volume is non-negotiable. A breakout on light volume is suspect — it lacks the institutional buying conviction needed to sustain a significant advance. When you see a stock break out of a perfect VCP pattern on volume that is barely above average, let it go. The best breakouts announce themselves with unmistakable volume.
The pocket pivot concept (developed by Gil Morales and Chris Kacher, adopted by Minervini) is an alternative entry that can precede the official VCP pivot breakout:
Pocket pivots can provide earlier entries with tighter risk, but they require more skill to identify correctly and have a lower success rate than proper VCP pivot breakouts. Minervini treats them as supplementary, not primary, entries.
A buyable gap-up is a powerful entry signal that occurs when a stock gaps significantly higher on massive volume, typically driven by an earnings surprise, new product announcement, or other fundamental catalyst.
Criteria for a buyable gap-up:
How to trade the buyable gap-up:
Why gap-ups work: A massive gap on huge volume represents a sudden, dramatic shift in institutional perception of the stock. Large players are willing to pay significantly more than yesterday's close to establish or add to positions. This level of demand often marks the beginning of a sustained advance.
The low-cheat entry is a technique for entering a position slightly before the official pivot breakout, in order to get a better price and reduce risk:
Advantages: Tighter stop = smaller risk per share = larger potential position size or smaller dollar risk. Earlier entry = lower average cost if the breakout succeeds.
Disadvantages: Lower probability of the trade working out (the breakout may never come). Requires more experience and chart-reading skill.
The Power Play is an ultra-tight consolidation pattern that forms after a significant fundamental catalyst (typically a strong earnings report):
Why the Power Play works: The tight post-catalyst consolidation tells you that shareholders who could take profits are choosing not to. Despite a large, rapid gain, virtually no one is selling. This is the strongest possible signal of conviction from large holders.
This is a counterintuitive but critical insight:
The pivot breakout is the market's proof that buyers are in control. Without that proof, you are guessing.
The absolute maximum loss Minervini will accept on any single trade is 7-8% from his entry price. This is a hard rule — no exceptions, no rationalizations, no hoping for a bounce.
Why 7-8%?
While 7-8% is the absolute maximum, Minervini's ideal loss on a well-executed trade is only 3-5%:
Stops are not placed at arbitrary round numbers or fixed percentages. They are placed at technically meaningful levels that, if breached, indicate the setup has failed:
Minervini uses the phrase "line in the sand" to describe the specific price level where you know the trade is wrong:
In addition to price-based stops, Minervini uses time-based stops:
Minervini divides selling into two categories: offensive selling (into strength, to lock in profits) and defensive selling (on weakness, to protect capital).
When a stock gains 20-25% from a proper base breakout pivot, take at least partial profits:
Why 20-25%? Historical research shows that many stocks advance 20-25% from their pivot before pulling back or consolidating. By taking some profit here, you capture the most common gain and reduce exposure to the inevitable pullback.
A climax top is the final, often dramatic, exhaustion of a stock's advance. Minervini identifies these signals as reasons to sell aggressively into strength:
When you see two or more of these signals simultaneously, sell all or most of your remaining position. Do not wait for the reversal. Sell into the euphoria.
Non-negotiable. When your predetermined stop-loss level is breached, you sell. No questions. No "waiting one more day." No "it'll come back." The stop exists for exactly this moment. Execute it.
During a Stage 2 advance, the 50-day (10-week) moving average serves as a key support level:
If the stock has its largest single-day decline (in percentage terms) since the beginning of the Stage 2 advance, this is a major warning:
If a 3rd or 4th stage base breakout fails (the stock breaks out, then quickly reverses and drops back below the pivot), sell immediately:
This is one of Minervini's most specific and powerful rules:
If a stock gains 20% or more within 3 weeks or less of its breakout, hold the position for at least 8 weeks from the original entry date.
Rationale:
Every trade begins with the same question: "How much can I lose?"
Before considering the potential profit, before even deciding whether to buy, you must:
If you cannot define a logical stop-loss level that limits your risk to an acceptable percentage, do not take the trade. Wait for a tighter setup.
The position size formula is:
Position Size (shares) = Maximum Dollar Risk / Per-Share Risk
Where:
Maximum Dollar Risk = Portfolio Value x Maximum Risk % Per Trade
Per-Share Risk = Entry Price - Stop-Loss Price
Example:
Portfolio Value: $100,000
Max Risk Per Trade: 1% = $1,000
Entry Price: $50.00
Stop-Loss Price: $47.00
Per-Share Risk: $50.00 - $47.00 = $3.00
Position Size = $1,000 / $3.00 = 333 shares
Position Value = 333 x $50.00 = $16,650 (16.65% of portfolio)
Key insight: Position size is not arbitrary or based on conviction. It is mathematically derived from your risk tolerance and the specific setup's risk characteristics. A trade with a tight stop (small per-share risk) naturally results in a larger position. A trade with a wide stop results in a smaller position. The risk per trade stays constant; the position size adjusts.
Minervini recommends concentrated portfolios:
Concentration requires conviction and discipline. You must be highly selective — only the very best setups deserve capital. And you must be rigorous about stop-losses — concentrated positions that go against you can cause significant damage if not managed.
Portfolio heat is the total open risk in the portfolio at any given time:
Portfolio Heat = Sum of (Dollar Risk per Open Position) for all positions
Dollar Risk per Position = (Entry Price - Current Stop Price) x Number of Shares
Maximum portfolio heat: 20-25% of total portfolio value. This means that if every single open position hit its stop-loss simultaneously, you would lose no more than 20-25% of your portfolio.
Why this matters: Portfolio heat is the defense against correlated losses. In a market crash, all stocks tend to go down together. If your total open risk is 40% and every stop gets hit, you lose 40% of your portfolio — a devastating drawdown. By capping portfolio heat at 20-25%, even the worst-case scenario (every stop hit simultaneously) leaves you with 75-80% of your capital intact.
If portfolio heat approaches the maximum, do not add new positions. Wait for existing positions to either be stopped out (reducing heat) or to advance enough that you can raise stops to breakeven (eliminating heat from those positions).
Most amateur traders fixate on win rate. Minervini focuses on the ratio of average win to average loss:
Expectancy = (Win Rate x Average Win) - (Loss Rate x Average Loss)
Example 1 (Minervini-style):
Win Rate: 50% Average Win: 15%
Loss Rate: 50% Average Loss: 5%
Expectancy: (0.50 x 15%) - (0.50 x 5%) = 7.5% - 2.5% = +5.0% per trade
Example 2 (Typical amateur):
Win Rate: 70% Average Win: 5%
Loss Rate: 30% Average Loss: 15%
Expectancy: (0.70 x 5%) - (0.30 x 15%) = 3.5% - 4.5% = -1.0% per trade
The amateur "wins" more often but goes broke. The SEPA trader "loses" half the time but compounds wealth rapidly. The size of your wins relative to your losses matters far more than how often you win.
Minervini's fundamental criteria are heavily influenced by William O'Neil's CAN SLIM system but refined through his own research. These criteria ensure that the stocks passing the Trend Template have genuine business quality, not just technical momentum.
Even the best individual stock setups will fail at a much higher rate in a declining market:
A distribution day is a day when a major index (S&P 500 or NASDAQ Composite) closes lower on volume that is higher than the prior day's volume.
Track distribution days on a rolling basis. When they cluster, begin reducing exposure.
A follow-through day (FTD) is a signal that a market correction may be ending and a new uptrend beginning:
What to do on a follow-through day:
Minervini adjusts his market exposure based on the weight of evidence:
| Market Condition | Target Exposure | Action |
|---|---|---|
| Confirmed uptrend, low distribution, leaders breaking out | 80-100% invested | Aggressively buy the best setups |
| Uptrend under pressure (some distribution) | 50-80% invested | Be selective, tighten stops |
| Uncertain / mixed signals | 25-50% invested | Only the very best setups, small positions |
| Downtrend / high distribution / bear market | 0-25% invested | Mostly or entirely cash |
Cash is not a "doing nothing" position. Cash is a deliberate, strategic allocation:
The most expensive mistake. The stock "looks like it's been going up" because it HAS — and now it is being distributed by the smart money to latecomers. By the time a stock is on magazine covers and "best of" lists, the move is over.
Adding to a losing position is the opposite of what SEPA teaches. If the stock is going down after your entry, the setup was wrong. Adding more shares to a wrong setup just makes the damage worse. Average up, never down. Add to winners, not losers.
Every trader takes losses. The question is whether the loss is 5% (manageable) or 50% (catastrophic). The difference is the stop-loss discipline. A 5% loss is a business expense. A 50% loss is a career-ending wound.
Fear of giving back gains causes traders to sell stocks that are still in Stage 2 uptrends after only modest gains. Meanwhile, they hold losers hoping for a recovery. This is exactly backwards. Cut losers quickly; let winners run until sell signals appear.
Owning 20-30 stocks means no individual position can significantly impact returns. It also means you cannot properly research or monitor each position. Concentration with discipline beats diversification with carelessness.
Trading aggressively in a bear market is like sailing into a hurricane. Even the best stocks get pulled down by a declining market. The first filter is ALWAYS the market direction. If the market is hostile, stay in cash.
Entering a trade without knowing your stop-loss level, position size, and profit targets is gambling, not trading. Every entry must be accompanied by a complete plan: where to get in, where to get out if wrong, and where to take profits if right.
The market does not care what you paid for a stock. Your purchase price is psychologically meaningful to you and completely irrelevant to the stock's future movement. Make all decisions based on the stock's current technical and fundamental condition, not on whether you are "up" or "down" from your entry.
Buying a stock that has already moved 10-15% beyond its pivot point means your stop-loss distance is now 15-20% or more. This violates the maximum loss rule and sets you up for an outsized loss when the stock pulls back. If you missed the pivot, wait for the next base to form.
Waiting for the "perfect" setup means you never trade. No setup is perfect. You need a setup that is good enough — meeting all the criteria — and you need to execute. The edge comes from the system over many trades, not from any single "perfect" trade.
This section walks through a complete hypothetical trade from initial screening to final exit, demonstrating every step of the SEPA process.
Nightly routine (after market close):
Stock XYZ is identified:
Before the market opens the next day:
TRADE PLAN — STOCK XYZ
═══════════════════════════════════════════
Entry Trigger: Break above $49.50 on volume ≥ 40% above 50-day avg
Stop-Loss: $47.70 (just below the T3 low of $47.80)
Per-Share Risk: $49.50 - $47.70 = $1.80 (3.6% from entry)
Portfolio Value: $100,000
Max Risk/Trade: 1.0% = $1,000
Position Size: $1,000 / $1.80 = 555 shares
Position Value: 555 × $49.50 = $27,472 (27.5% of portfolio)
Profit Target 1: $49.50 × 1.20 = $59.40 (20% gain — partial sell)
Profit Target 2: Let remainder run with trailing stop
═══════════════════════════════════════════
Day 1: XYZ opens at $49.80, above the $49.50 pivot. Volume is already tracking at twice the 50-day average by 10:30 AM. Buy 555 shares at $49.80.
Actual per-share risk: $49.80 - $47.70 = $2.10. Actual dollar risk: 555 × $2.10 = $1,165.50 (1.17% of portfolio). Slightly above the 1% target, but within the acceptable range.
Week 1: XYZ closes the week at $52.40. The breakout is working. No action needed. Stop remains at $47.70.
Week 2: XYZ reaches $54.00 midweek, then pulls back to $51.50 on Friday. Normal pullback. Stop remains at $47.70. The stock is still above the 50-day MA. No sell signals present.
Week 3: XYZ surges to $59.50 on strong earnings report. The stock has gained 19.5% in 3 weeks. This is approaching the 20% threshold in the 8-week hold rule territory.
Decision point: XYZ is close to 20% in 3 weeks. If it hits 20% ($59.76), the 8-week hold rule activates. The stock hits $59.80 on Thursday — the rule is in effect. Hold for at least 8 weeks from the original entry date.
Weeks 4-6: XYZ consolidates between $57 and $62. Normal. Raise stop to breakeven ($49.80). The position is now risk-free on the remaining shares.
Week 7: XYZ breaks out of its mini-consolidation to $64.50 on above-average volume. This is a potential add-on opportunity (the stock is forming a new VCP within Stage 2).
Week 8: The 8-week hold period expires. XYZ is at $65.00. Now re-evaluate:
Week 12: XYZ reaches $72.00. It then has its largest single-day decline (4.5%) since the breakout, closing at $68.80 on heavy volume. This is a climax warning.
Week 13: XYZ gaps down below the 50-day MA on volume 80% above average. Two consecutive closes below the 50-day MA.
Sell decision: Multiple defensive sell signals — largest down day, close below 50-day on heavy volume, 50-day MA flattening. Sell remaining position at $66.50.
TRADE SUMMARY — STOCK XYZ
═══════════════════════════════════════════
Entry: 555 shares at $49.80 = $27,639
Exit: 555 shares at $66.50 = $36,907
Gross Profit: $9,268
Return: 33.5%
Hold Period: 13 weeks
Risk Taken: $1,165 (1.17% of portfolio)
Reward/Risk: $9,268 / $1,165 = 7.95:1
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The trade risked approximately 1% of the portfolio and returned 9.3% of the portfolio. This is the SEPA system working as designed: small risk, managed position, defined sell rules, and a significant win that more than compensates for multiple small losses.
"In the stock market, the best opportunities come with a price tag of uncertainty. Waiting for certainty means you'll enter too late or not at all."
"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong."
"Superperformance stocks don't start their runs from a position of fundamental weakness. They start with powerful earnings, sales growth, and profit margins — and a chart that reflects institutional accumulation."
"The VCP is not just a chart pattern — it is a visual representation of how supply dries up and demand takes control. Each contraction shows fewer sellers willing to part with their shares at current prices."
"Your job is not to predict the future. Your job is to recognize when the present matches the blueprint of past superperformance stocks, and to act with discipline when it does."
"Cutting your losses short is the single most important thing you can do to improve your investment results. Everything else is secondary."
"The biggest mistake I see traders make is buying stocks in the wrong stage. They buy in Stage 4, thinking they're getting a bargain. The only bargain they're getting is a front-row seat to further losses."
"I don't buy on the way down. I buy on the way up. I buy stocks that are hitting new highs, not new lows. I know it sounds counterintuitive, but the biggest winners come from stocks that are already winning."
"Position sizing is the unsung hero of risk management. Most traders focus on what to buy and when to buy it. The professionals focus on how much to buy."
"Cash is a position. In hostile market environments, being in cash is not doing nothing — it is doing the right thing. Capital preservation is the foundation of capital appreciation."
"I never average down. If I'm wrong, I want to be wrong with the least amount of capital possible, not the most."
"The trend template is my first filter. If a stock doesn't pass all eight criteria, I don't care how great the story is, how cheap the P/E looks, or how good the earnings are. It is not in play."
"Buying at the pivot is not buying high. It is buying at the moment of maximum probability. The stock has proven that demand exceeds supply at that price level."
"Most traders think being right 70% of the time is the key to success. I'd rather be right 50% of the time with a 3-to-1 reward-to-risk ratio. The math is far more favorable."
"Discipline is doing the right thing when it feels wrong. Selling a losing position feels wrong. Holding a winning position through a pullback feels wrong. But these are exactly the actions that separate the winners from the losers."
This specification covers the foundational SEPA methodology as presented in Minervini's first book. The subsequent volumes — Think & Trade Like a Champion (2017) and Mindset Secrets for Winning (2019) — build upon this foundation with refined execution rules, advanced risk management techniques, and the psychological architecture required for consistent implementation.