Trade Like a Stock Market Wizard: How to Achieve Super Performance in Stocks in Any Market: How to Achieve Superperformance in Stocks in Any Market

by Mark Minervini

The vast majority of investors operate from faulty assumptions that are based on personal opinion or theory, not unbiased facts. Only a fraction of stock traders have made the effort to carefully study the characteristics and behavior patterns of superperformance stocks. Among those who acquire the necessary knowledge, many fail to develop the emotional discipline to execute a winning plan.

Of course, the master of them all was Jesse Livermore, the greatest trader ever. In 1907, he made $3 million in a single day. While most investors were devastated during the great crash of 1929, Livermore made a whopping $100 million shorting the market.

I’ve constructed a blueprint of the characteristics shared by superperformance stocks. I call this a Leadership Profile, which is an ongoing effort to identify in detail the qualities and attributes of the most successful stocks of the past to determine what makes a stock likely to dramatically outperform its peers in the future. The focus is not just on the magnitude of a price move—how much a stock goes up—but also on the time element of the equation: how fast it goes up and what accounts for the rapid rise.

The SEPA approach, which I will explain in detail, allows me to find those elite candidates that have the potential to become superperformers. The objective of SEPA is to take all the pertinent information available and pinpoint the precise spot at which to enter a high-probability trade in terms of risk versus reward.

THE FIVE KEY ELEMENTS OF SEPA The basic characteristics are broken down into five major categories, which make up the key foundational building blocks of the SEPA methodology:

The SEPA ranking process can be summarized as follows:

I execute a trade only at the point of alignment across the spectrum with regard to company fundamentals, stock price, and volume activity as well as overall market conditions.

During the bear market correction of the early 1990s, I focused on stocks that were holding up well and then moved into new high ground first off the market’s low. Most of the names I traded were relatively unknown at the time. These stocks were propelled by characteristics such as big earnings growth and strong product demand.

Generally speaking, though, if a large-cap company advances rapidly in a short period, I’m inclined to take profits on it more quickly than I would with a smaller, faster-growing company that may have the potential to double or even triple in a number of months.

Volume spikes on big up days and big up weeks are contrasted by volume contractions during normal price pullbacks. • There are more up days and up weeks on above-average volume than down days and down weeks on above-average volume.

In fact, 99 percent of superperformance stocks traded above their 200-day moving averages before their huge advance, and 96 percent traded above their 50-day moving averages.

I apply the Trend Template criteria (see below) to every single stock I’m considering. The Trend Template is a qualifier. If a stock doesn’t meet the Trend Template criteria, I don’t consider it. Even if the fundamentals are compelling, the stock must be in a long-term uptrend—as defined by the Trend Template—for me to consider it as a candidate.

Trend Template

Bases 1 and 2 generally come off a market correction, which is the best time for jumping on board a new trend.

If your stock experiences its largest daily and/or weekly price decline since the beginning of the stage 2 advance, this is a sell signal in most cases even if it comes on the heels of a seemingly great earnings report. Don’t listen to the company or the media; listen to the stock.