Think and Trade Like a Champion

Author: Mark Minervini

Overview

Think and Trade Like a Champion (2017) is Mark Minervini's second book, serving as a companion volume to Trade Like a Stock Market Wizard (2013). Minervini, a U.S. Investing Champion who turned a few thousand dollars into a multimillion-dollar fortune over 33 years of full-time stock trading, provides a detailed guide to his Specific Entry Point Analysis (SEPA) trading strategy. The book emphasizes that trading success requires the right knowledge, a commitment to the learning process, and the will to persist, delivered through 11 sections covering planning, risk management, stock selection, position sizing, selling discipline, and the psychological framework necessary for superperformance.

The Champion Mindset

The book opens with a powerful psychological framework. Minervini introduces the metaphor of "two wolves" (adapted from a Native American parable via Pema Chodron): every trader contains both a "builder" (disciplined, process-driven, focused on procedure) and a "wrecking ball" (ego-driven, fixated on results, prone to blame and strategy-hopping). The champion trader consciously feeds the builder and starves the wrecking ball.

Minervini argues forcefully that winning is a choice, not a gift. He draws on the Berlin violin study (later popularized by Malcolm Gladwell's 10,000-hour rule) to demonstrate that no "naturally gifted" performers emerged--success was directly correlated with deliberate practice hours. He references Daniel Coyle's concept of "deep practice" from The Talent Code: not mere repetition, but using feedback to make adjustments and making practice more meaningful.

Key psychological principles include: deciding to win (consciously committing to excellence), aligning your belief system with your strategy (avoiding inner conflict that leads to self-sabotage), modeling success (studying legendary traders to internalize their thinking), embracing the process rather than fixating on immediate results, prioritizing goals (pursuing mastery requires deliberate imbalance and total immersion), taking action without delay, and expanding your comfort zone through progressive skill development.

Minervini describes three levels of knowledge: ideas presented by others, beliefs (when you become convinced something is true), and knowing (firsthand experience that becomes instinctive). The goal is to reach the third level through practice and personal experience.

Always Go in with a Plan

Section 1 establishes the absolute necessity of having a concrete trading plan before entering any position. Minervini draws an analogy between trading and other professions: no contractor builds without blueprints, no surgeon operates without a plan, yet many traders commit thousands of dollars based on tips from friends without any structured approach.

The key elements of a trading plan include: an entry mechanism that triggers the buy decision, a risk management protocol for when trades move against you, a profit-locking strategy, and a position sizing and fund allocation framework.

Minervini emphasizes that "hope is not a plan," referencing fellow Market Wizard Ed Seykota's distinction between intuition and "into wishing." He uses the train schedule analogy: if you know the 6:05 train should arrive, you can tell when something is wrong if it has not appeared by 7:30. Without a schedule (plan), you are simply standing on the platform hoping.

Contingency Planning

A major innovation in Minervini's framework is his detailed contingency planning system, which covers: initial stop-loss (set before purchase, executed without question), reentry criteria (a stock stopped out can still be a future buy candidate if it resets constructively), selling at a profit (both into strength and into weakness), and disaster planning (backup systems for power failures, brokerage outages, catastrophic events). His priorities, in order of importance, are: limit your loss, protect your line (move stop to breakeven after initial advance), and protect your profit (use trailing stops for larger gains).

Risk-First Approach and Position Sizing

Minervini's core philosophy is approaching every trade risk-first, never risking more than you expect to gain. Position sizing is calibrated to optimal results, balancing the potential for compounding gains against the risk of compounding mistakes. The mathematical relationship between position size, stop-loss distance, and portfolio risk is central to the SEPA methodology.

Stock Selection: The Trend Template and VCP

Stage 2 Uptrend Criteria

Minervini uses an eight-criteria "Trend Template" to identify stocks in confirmed Stage 2 uptrends. All eight must be met:

1. Stock price above both the 150-day and 200-day moving averages
2. The 150-day moving average is above the 200-day
3. The 200-day moving average is trending up for at least 1 month (preferably 4-5 months)
4. The 50-day moving average is above both the 150-day and 200-day
5. Current price is at least 25% above its 52-week low
6. Current price is within 25% of its 52-week high
7. Relative strength ranking is no less than 70 (preferably 90s)
8. Current price is trading above the 50-day moving average as it emerges from a base

The Volatility Contraction Pattern (VCP)

The VCP is Minervini's proprietary concept for timing entries. During a price consolidation, he looks for successive contractions where volatility decreases from left to right in the base. Each successive contraction is generally about half the previous pullback. A typical VCP shows 2-6 contractions accompanied by declining volume, signifying that supply (selling pressure) is being absorbed and weak holders are being replaced by strong institutional investors.

Minervini uses a "wet towel" analogy: just as wringing a towel produces less water with each successive twist, each price contraction produces less volatility until the stock is "dry" (free of selling pressure) and can move higher easily. When the stock breaks out of the VCP pattern on increased volume, it signals institutional accumulation and presents a high-probability entry point.

The VCP "footprint" captures three components: time (days/weeks since base started), price (depth of largest correction and narrowness of smallest contraction), and symmetry (number of contractions throughout the basing process).

Follow-Through and Tennis Balls vs. Eggs

After purchasing, Minervini looks for multiple days of follow-through buying on increased volume, distinguishing institutional accumulation from retail buying. He uses Bill Berger's metaphor: you want to own "tennis balls, not eggs." Tennis ball stocks bounce back quickly from pullbacks (2-5 days) and recover to new highs, while "egg" stocks break down without recovery. Pullbacks of 40-50% frequency back to the breakout level are considered normal if recovery is swift.

Avoiding Dangerous Stocks

Minervini warns against buying stocks below their 200-day moving average, citing examples like Valeant Pharmaceuticals (VRX), which fell 92% after breaking below this level. He describes "serial gappers"--stocks in long-term downtrends that experience frequent large gap-downs, representing catastrophic overnight risk. The lesson is that "cheap" stocks tend to get cheaper while "expensive" growth stocks often get more expensive.

Selling Discipline

Selling is addressed through both selling into strength (when a stock runs up too rapidly and may be exhausting itself, or when buyers are plentiful) and selling into weakness (when a stock reverses to a level that must be protected). Once a stock shows a decent profit (generally a multiple of the stop-loss), it should never be allowed to turn into a loss.

Eight Keys to Superperformance

Section 10 presents Minervini's distilled principles for achieving exceptional stock market returns, drawing on his decades of experience studying the characteristics shared by the greatest performing stocks throughout market history.

Significance

This book occupies a unique position in the trading literature by combining a rigorous, rules-based technical methodology (the SEPA system with its Trend Template and VCP framework) with deep psychological insight into what separates champion traders from the rest. Minervini's approach is predicated on historical analysis of superperformance stocks dating to the late 1800s, making it empirically grounded rather than purely theoretical. The emphasis on process over results, contingency planning, and progressive skill development makes it both a tactical manual and a philosophical guide for serious stock traders.