Who is Mark Minervini? SEPA and his books
Mark Minervini is a US stock trader and author known for buying fast-growing stocks as they break out of tight bases. He was one of the traders interviewed in Jack Schwager’s Stock Market Wizards (2001), and he set out his own method in two books: Trade Like a Stock Market Wizard (2013) and Think & Trade Like a Champion (2017), which he presents as a follow-up to the first.
He calls the approach SEPA, short for Specific Entry Point Analysis: the stock must be in a strong uptrend with strong earnings behind it, it is bought only at a precise, low-risk entry point, and the loss is cut quickly if the trade fails. The trend template and the VCP are the trend and entry parts of that process. For the earnings side, see CAN SLIM and how to pick growth stocks.
A famous trader’s results are not typical, and copying his rules does not copy his outcomes. This guide describes the method as he published it, with hypothetical numbers, and shows where it fails.
The Minervini trend template: 8 criteria for an uptrend
Before looking for any base, Minervini filters out stocks that are not already in a confirmed uptrend. In Trade Like a Stock Market Wizard he lists eight conditions, the trend template, and a stock must meet all of them (list below). The drawing shows the result: price above three rising moving averages stacked in order, close to its 52-week high.
Hypothetical check: stock XYZ closes at $50.00. Its 50-day average is $46.00, the 150-day $41.00 and the 200-day $38.00, rising for five months. The 52-week low is $30.00, so price is 67% above it; the 52-week high is $54.00, so price is 7.4% below it. With a relative strength ranking of 85, XYZ passes all eight. The same stock with a falling 200-day average fails, however good the rest looks.
The template is a filter, not a buy signal: it tells you which charts are worth watching for a base. On TradingView, add three simple moving averages (SMA) with lengths 50, 150 and 200 to a daily chart to check the first five conditions at a glance.
- The price is above both the 150-day and the 200-day moving averages.
- The 150-day moving average is above the 200-day.
- The 200-day moving average has been rising for at least one month, preferably four to five months or more.
- The 50-day moving average is above both the 150-day and the 200-day.
- The price is above the 50-day moving average.
- The price is at least 30% above its 52-week low.
- The price is within 25% of its 52-week high; the closer, the better.
- The relative strength ranking, a 1–99 score published by a US financial newspaper, is at least 70, preferably in the 80s or 90s.
Relative strength and the RS line: leaders first
The eighth criterion asks whether the stock is beating the market. A stock that holds up while the index pulls back, then reaches new highs first, shows that buyers want it. The ranking compares a stock with all others on a 1–99 scale; the RS line is simpler: the stock’s price divided by an index such as the S&P 500, plotted over time.
A rising RS line means the stock is outperforming, even on days when both fall. Many growth traders like to see the RS line reach a new high before, or together with, the price breakout, as in the drawing. On TradingView you can plot it by typing your ticker followed by /SPX into the symbol search.
Hypothetical: the index falls 8% in a correction while XYZ dips only 3% and regains its high first. The warning sign is the opposite: price makes a new high while the RS line makes a lower high, so the stock is rising mostly because the market is.
What is a VCP? Contractions, volume dry-up and the pivot
Once a stock passes the template, it often pauses in a base. In a volatility contraction pattern, that base is a series of pullbacks, or contractions, that get smaller from left to right while volume shrinks. The drawing at the top of this page shows three: −25%, −12% and −6%. Each is roughly half the one before; that ratio is a guide, not a rule.
The logic Minervini gives is supply and demand. Each shallower pullback means fewer holders are willing to sell at lower prices, and drying volume shows that selling has slowed. When the last contraction is only a few percent deep on very light volume, little supply is left, and new demand can move price quickly. Bases usually show two to four contractions, sometimes more, and VCP traits can appear inside other base shapes, such as a cup with handle.
Hypothetical VCP in XYZ: it rallies to $60.00, pulls back 25% to $45.00, recovers to $58.00, pulls back 12% to $51.04, recovers to $56.00 and pulls back 6% to $52.64. Average daily volume falls from 2 million shares in the first pullback to 1.2 million in the second and 600,000 in the third. The pivot is $56.00, the top of the last contraction.
- Contraction
- One pullback inside the base, measured from its high to its low in percent. In a VCP, each one is smaller than the one before.
- Volume dry-up
- Volume well below average during the last, tightest contraction: a sign that sellers have largely stopped.
- Pivot
- The high of the last contraction. A move through it on rising volume is the entry trigger.
How to buy the VCP breakout: the pivot and the volume
The entry is a move through the pivot, ideally on volume clearly above average; a breakout on light volume shows little demand and deserves suspicion. Breakout traders often place a buy-stop order just above the pivot, so it fills only if price actually breaks out. A more conservative variant waits for the day to close above the pivot on high relative volume, accepting a slightly higher price.
Hypothetical: with the pivot at $56.00, a buy-stop sits at $56.10. On breakout day XYZ trades through it by midday, with volume running at twice its normal pace, and closes at $57.20 on 2.4 times its average volume. The drawing zooms in on that moment: a tight box, then a close above it on a volume spike.
Don’t buy inside the base before the breakout, and don’t chase far above the pivot, which ruins the math: buy at $60.50 two days later and a stop under the last contraction risks $8.00 a share instead of $3.60. More on entries in the breakout trading strategy guide.
If you time the breakout day on an intraday chart, UpTickFlow, our invite-only TradingView indicator, can serve as a second check (weigh that accordingly). It does not find VCPs or screen stocks; on 5-minute to 1-hour charts it waits for a candle to close at a level, draws an entry, a stop and a target before the trade, scores the setup from 0 to 100 and stays quiet in chop.
Stop loss and position size: the 10% ceiling
Minervini sets 10% as the absolute maximum loss on any trade and says the average loss should be much smaller. The reason is arithmetic: a 10% loss needs an 11% gain to recover, a 50% loss needs 100%. He also rules out averaging down, that is, adding to a losing position.
A VCP makes a tight stop possible. The logical place is just below the low of the last contraction: if price falls back there, the tightening has failed. In the example the low is $52.64, so the stop goes at $52.50. From a $56.10 entry that is $3.60 a share, or 6.4%: inside the ceiling. If the stop would have to sit 12% away, the base is too loose; skip it rather than squeeze the stop.
Size comes from the stop. This guide uses 1% of the account as an example risk; it is not a figure from Minervini’s books. On a $50,000 account that is $500, so $500 ÷ $3.60 = 138 shares, about $7,740 of stock. If the stop is hit, the loss is about $497. A gap down through the stop, often on an earnings report, can make it larger. The position size calculator does the math.
For targets, measure in R: here 2R is $63.30 and 3R is $66.90. See the risk-reward ratio and stop loss and take profit guides.
The VCP and Weinstein’s stage 2
The four stages come from Stan Weinstein’s 1988 book, Secrets for Profiting in Bull and Bear Markets. On a weekly chart with a 30-week moving average, a stock moves through stage 1, a flat base; stage 2, an advance above a rising average; stage 3, a choppy top as the average flattens; and stage 4, a decline below a falling average. The drawing marks the buy zone at the start of stage 2.
Minervini uses the same four stages and buys only in stage 2. The trend template is, in effect, a stage 2 checklist on daily averages: the 150-day is about 30 weeks and the 200-day about 40. A VCP is a pause inside stage 2, not a bottom after a long decline: a tight-looking range under a falling 200-day average is a stage 4 stock resting, not a setup.
Many growth traders also distrust a base that appears after a long run, as the averages flatten: it may be the start of stage 3. The stage analysis guide covers each stage in detail.
Why most VCP breakouts fail, and how to exit
Breakouts fail often, and a failure looks exactly like the setup at first. Common causes: a weak or falling market, which drags most stocks down with it; a breakout on light volume; a base that was too loose or too late in the advance; and an earnings report that gaps the stock.
Same hypothetical XYZ, another week: you buy at $56.10, but the next day it closes back at $54.80, inside the base, on heavy volume, and two days later it hits $52.50. With 138 shares the loss is about $497, 1% of the account: planned and survivable. A trader who skipped the stop and held to the base low at $45.00 is down $11.10 a share, about $1,530, three times as much, and still hoping.
None of this makes the VCP reliable; it keeps losses small enough that you can afford to be wrong often. Exit rules that follow from the method:
- Set the stop before you buy, below the last contraction’s low and never more than 10% away, and never lower it.
- Treat a close back below the pivot on heavy volume as a warning; many breakout traders exit right away instead of waiting for the stop.
- Never average down.
- Don’t let a large gain turn into a loss: as the stock rises, raise the stop, for example to breakeven once it is up about twice your risk.
- Sell part of the position into strength after a fast run, and exit the rest when the trend breaks, for example on a close below the 50-day average on heavy volume.