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How to Trade Like a Champion Market Wizard
Insights from Trading Legend Mark Minervini
cover story
30
www.tradersonline-mag.com 08.2015
Insights from trading Legend Mark Minervini
How to trade Like achampion Market Wizard
Investing styles may differ among successful market players, but without exception, winning stock traders share
certain key traits required for success. Fall short in those qualities and you will surely part ways with your money.
The good news is that you do not have to be born with them. Along with learning effective trading tactics, you
can develop the mindset and emotional discipline needed to win big in the stock market. Two things are required:
a desire to succeed and a winning strategy. There is a big difference between making a decent return in the stock
market and achieving super performance, and that difference can be life changing. Whether you are an accountant,
a school teacher, a doctor, a lawyer, a plumber, or even broke and unemployed as the author was when he started –
you can attain super performance.
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31
gains like the market’s money instead of their money, and
in due time the market takes it back.
Let us say someone buys a stock at $20 a share. It
climbs to $27. Then the investor decides he can “give it
room” because he has a seven point cushion. Wrong!
Once a stock moves up a decent amount from its purchase
price, Mark Minervini usually gives it less room on the
downside. He goes into a profit protection mode. At the
very least, he protects his breakeven point. He is certainly
not going to let a good gain turn into a loss.
At the end of each trading session, when you review
your portfolio, ask yourself this: Am I bullish on this
position today? If not, why am I holding it? Does your
original reason for going long remain valid? End every
trading day with a frank appraisal of all your positions.
We are not suggesting that you not allow a stock to go
through a normal reaction or pullback in price if you
believe the stock can go much higher.
Of course, you should give stocks some room to
fluctuate, but that leeway has little to do with your past
gain. Evaluate your stocks on the basis of the return
you expect from them in the future versus what you are
risking. Each day, a stock must justify your confidence in
holding it for a greater profit.
Avoid the Big ErrorsRecently, the author had a chance to speak with Itzhak
Ben-David, coauthor of the study “Are Investors Really
» Consistency Wins the RacePeople buy stocks in hopes of
making money and increasing their
wealth. They dream of the great
returns that their carefully chosen
investments will yield in the future.
Before investing your hard-earned
cash, however, you had better think
about how you will avoid losing it.
If there is one thing Mark
Minervini has learned over the
years, it is that risk management is
the most important building block
for achieving consistent success
in the stock market. Notice that we
said “consistent.” Anyone can have
short term success by being in the
right place at the right time, but
consistency is what differentiates
the pros from the amateurs, the
timeless legends from the one hit
wonders.
During his career, the author has witnessed many
people make millions of dollars during good times, only
to give it all back and even go broke. We are going to tell
you how to avoid that fate.
It is Your Money, but Only as Long as You Protect itTo achieve consistent profitability, you must protect
your profits and principal. As a matter of fact, Mr
Minervini does not differentiate between the two. A big
mistake many traders make is to consider trading profits
as house money, acting as if that money somehow is
less their own to lose than their original starting capital
is. If you have fallen into this mental habit, you need
to change your perception immediately to achieve
superperformance.
Let us say the author makes $5,000 on Monday. He
does not consider himself $5,000 “ahead of the game,”
free to risk that amount shooting for the moon. The
account simply has a new starting balance, subject to
the same set of rules as before. Once he makes a profit,
that money belongs to him. Yesterday’s profit is part of
today’s principal.
Do not fall into the faulty reasoning of amateur
gamblers. Through consistent play and conservative
wagering, a player picks up $1,500 at the blackjack table.
Then he starts to make big, reckless bets. In his eyes, he
now is playing with house money. This happens all the
time in the stock market. Amateur investors treat their
The stock of Repligen (RGEN) broke out dynamically in March 2015. Moving the stop to breakeven protects your principal and keeps you with the longer term trend.
Source: www.tradesignalonline.com
F1) strong Breakout trade
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www.tradersonline-mag.com 08.2015
Most investors are simply too slow
in closing out losing positions. As a
result, they hold on until they cannot
take the pain anymore, and that eats
up precious capital and valuable
time. To be successful, you must
keep in mind that the only way you
can continue to operate is to protect
your account from a major setback
or, worse, devastation.
Avoiding large losses is the
single most important factor for
winning big as a speculator. You
cannot control how much a stock
rises, but in most cases, whether
you take a small loss or a big loss
is entirely your choice. There is one
thing we can guarantee: if you cannot
learn to accept small losses, sooner
or later you will take big losses. It is
inevitable.
To master the craft of speculation,
you must face your destructive
capacity; once you understand and acknowledge this
capacity, you can control your destiny and achieve
consistency. You should focus a significant amount
of time and effort on learning how to lose the smallest
amount possible when you are wrong. You must learn to
avoid the big errors.
Practice Does Not Make PerfectMark Minervini knows people who have managed
money on Wall Street for decades yet have only
mediocre results to show for it. You would think that
after all those years of practice their performance
would be stellar or at least would improve over time.
Not necessarily. Practice does not make perfect. In
fact, practice can make performance worse if you are
practicing the wrong things.
When you repeat something over and over, your brain
strengthens the neural pathways that reinforce the action.
The problem is that these pathways will be reinforced for
incorrect actions as well as correct actions. Any pattern
of action repeated continuously will eventually become
habit. Therefore, practice does not make perfect; practice
only makes habitual behaviour.
In other words, the fact that you have been doing
something for a while does not mean you are guaranteed
success. It could be that you are just reinforcing bad
habits. The author subscribes to the advice of legendary
Reluctant to Realise Their Losses? Trading Responses to
Past Returns and the Disposition Effect.” The tendency
to sell winners too soon and to keep losers too long has
been called the disposition effect by economists.
Mr Ben-David and David Hirshleifer studied stock
transactions from more than 77,000 accounts at a large
discount broker from 1990 through 1996 and did a variety
of analyses that had never been done before. They
examined when investors bought individual stocks, when
they sold them, and how much they earned or lost with
each sale.
They also examined when investors were more likely
to buy additional shares of a stock they had previously
purchased. Their results were published in the August
2012 issue of the Review of Financial Studies.
The study highlights several interesting conclusions:
• Investors are more likely to allow a stock to reach a
large loss than they are to allow a stock to attain a
large gain; they hold losers too long and sell winners
too quickly.
• The probability of buying additional shares is greater
for shares that have lost value than it is for shares
that have gained value; investors may readily double
down on their bets when stocks decline in value.
• Investors are more likely to take a small gain than a
small loss.
In November 2014, Mark Minervini bought a questionable “V”-shaped breakout at Alcoa (AA). As the stock did not confirm the breakout but started to go lower, the mistake was recognized and the position closed for a small loss.
Source: www.tradesignalonline.com
F2) Booking a small Loss
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33
football coach Vince Lombardi. As he said, “Practice does
not make perfect. Only perfect practice makes perfect.
In the stock market, practicing wrongly will bring
you the occasional success even if you are using flawed
principles. After all, you could throw darts at a list of
stocks and hit a winner once in a while, but you will not
generate consistent returns and eventually you will lose.
The reason most investors practice incorrectly is
that they refuse to objectively analyse their results to
discover where their approach is going wrong. They
try to forget the losses and keep doing what they have
always done.
The proliferation of cheap brokerage commissions,
Internet trading, and web-based stock market data may
have provided everyone with the same technology, but it did
not grant investors an equal ability to use those resources.
Just as picking up a five iron does not make you Tiger
Woods, opening a brokerage account and sitting in front
of a computer screen does not make you Peter Lynch or
Warren Buffett. That is something you must work for, and
it takes time and practice. What is important is that you
learn how to practice correctly.
Avoid Paper TradingAs new investors learn the ropes, often they engage in
paper trading to practice before putting real money at
risk. Although this sounds reasonable, Mr Minervini is
not a fan of paper trading, and he does not recommend
doing it any longer than absolutely
necessary until you have some
money to invest. Paper trading is
the wrong type of practice. It is like
preparing for a professional boxing
match by only shadow boxing; you
will not know what it is like to get hit
until you enter the ring with a real
opponent.
Paper trading does little to
prepare you for when you are trading
for real and the market delivers a real
punch. Because you are not used to
feeling the emotional as well as the
financial pressure, it is unlikely that
you will make the same decisions you
did in your practice sessions.
Although paper trading may
help you learn your way around the
market, it can also create a false
sense of security and impede your
performance and learning process.
Psychologist Henry L Roediger III, who is the principal
researcher for the department of psychology at Washington
University in St. Louis, conducted an experiment in which
students were divided into two groups to study a natural
history text.
Group A studied the text for four sessions. Group B
studied only once but was tested on the subject three
times. A week later the two groups were tested, and
group B scored 50 per cent higher than group A. This
This buy setup in late February 2015 in Amphastar Pharmaceuticals (AMPH) was emerging from a classic volatility contraction pattern.
The higher your drawdown, the more difficult it will be to make it back. That is a mathematical reality you should always keep in mind.
Source: www.minervini.com
Loss Gain to Break Even
5% 5.26%
10% 11%
20% 25%
30% 43%
40% 67%
50% 100%
60% 150%
70% 233%
80% 400%
90% 900%
T1) Loss versus Gain Asymmetry
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www.tradersonline-mag.com 08.2015
demonstrates the power of actually doing the thing
you are trying to accomplish versus preparing for it in
simulation.
If you are just starting out, you should trade with
real money as soon as possible. If you are a novice
trader, a good way to gain experience is to trade with an
amount of money that is small enough to lose without
changing your life but large enough that losses are at
least somewhat painful.
Do not fool yourself into a false sense of reality. Get
accustomed to trading for real because that is what you
are going to have to do to make real money.
Commit to an ApproachYou do not need a PhD in math or physics to be successful
in the stock market, just the right knowledge, a good work
ethic, and discipline. The author’s SEPA® methodology
was developed after decades of searching, testing, and
going back to the drawing board countless times to
uncover what actually works.
You, too, will go through your own trial and error
period: window shopping and trying various concepts
and approaches to the stock market, whether value,
growth, fundamental, technical, or some combination.
In the end, to succeed, you will need to settle on
an approach that makes sense to you. Most important,
you must commit to perfecting and refining your
understanding of that methodology and its execution.
A stock trading strategy is like a marriage; if you are
not faithful, you probably will not have a good outcome.
It takes time and dedication, but your objective should
be to become a specialist in your approach to the
market.
Although strategy is important, it is not as critical
as knowledge and the discipline to apply and adhere to
your rules. A trader who really knows the strengths and
weaknesses of his or her strategy can do significantly
better than someone who knows only a little about a
superior strategy. Of course, the ideal situation would be
to know a lot about a great strategy. That should be your
ultimate goal.
Invest in Yourself FirstWhen the author began trading in the early 1980s, he
endured a six-year period when he did not make any
money in stocks. In fact, he had a net loss. It was not
until 1989 that he began to achieve meaningful success.
What kept him going? Unconditional persistence! An
investment in knowledge, which takes time to acquire, is
an investment in yourself, but it requires persistence.
When you make an unshakable commitment to a
way of life, you put yourself way ahead of most others
in the race for success. Why? Because most people
have a natural tendency to overestimate what they can
Title: Trade Like a Stock Market Wizard
Subtitle: How to Achieve Super Performance in Stocks
in Any Market
Author: Mark Minervini
Pages: 352 pages
Publisher: McGraw-Hill (April 2013)
Price: $ 27.00 Hardcover, $ 27.00 Ebook
ISBN: 978-0-07180-722-7
Bibliography
period: window shopping and trying various concepts
and approaches to the stock market, whether value,
In the end, to succeed, you will need to settle on
an approach that makes sense to you. Most important,
you must commit to perfecting and refining your
A stock trading strategy is like a marriage; if you are
not faithful, you probably will not have a good outcome.
It takes time and dedication, but your objective should
in the race for success. Why? Because most people
have a natural tendency to overestimate what they can
You should trade with real moneyas soon as possible.
cover story
35
achieve in the short run and underestimate what they
can accomplish over the long haul. They think they have
made a commitment, but when they run into difficulty,
they lose steam or quit.
Most people get interested in trading but few make
a real commitment. The difference between interest
and commitment is the will not to give up. When you
truly commit to something, you have no alternative but
success. Getting interested will get you started, but
commitment gets you to the finish line.
The first and best investment you can make is an
investment in yourself, a commitment to do what it
takes and to persist. Persistence is more important than
knowledge. You must persevere if you wish to succeed in
anything. Knowledge and skill can be acquired through
study and practice, but nothing great comes to those who
quit.
Expect Some Rotten DaysThe key to success is to become a successful thinker and
then act on those thoughts. That does not mean that all
your ideas and actions will always produce the desired
results. At times you will feel that success is unattainable.
You may even feel like giving up. The author knows. He
has been there. Along the way he had days when he
felt so demoralised by his unsatisfactory results that he
almost threw in the towel and gave up.
However, Mark Minervini knew the power of
persistence. Then, after more than a decade of trial and
error, he was making more money in a single week than
he dreamed of making in a year. He experienced what
the English poet and playwright Robert Browning meant
when he wrote, “A minute’s success pays the failure of
years.”
Remember, if you choose not to take risks,
to play it safe, you will never know what it feels
like to accomplish your dreams. Go boldly after
what you want and expect some setbacks, some
disappointments, and some rotten days. Embrace
them all as a valuable part of the process and learn to
say, “Thank you teacher.”
Be happy, feel appreciative, and celebrate when you
win. Do not look back with regrets at failures. The past
Mark Minervini
Mark Minervini is one of America’s most successful stock investors. Starting with only a few thousand dollars, he turned his personal trading account into millions. Mark educates traders about his trading methodology through Minervini Private Access, a platform that allows users the unique experience of trading side by side with him in real time.
www.minervini.com
Mark Minervini
Mark Minervini is one of America’s most successful stock investors. Starting with only a few thousand dollars, he turned his personal trading account into millions. Mark educates traders about his trading methodology through Minervini Private Access, a platform that allows users the unique experience of trading side by side with him in real time.
cannot be changed, only learned from. Most important,
never let rotten days make you give up.
ConclusionTo realise profits from investing in stocks, you must make
three correct decisions: what to buy, when to buy, and
when to sell. Not all of your decisions will turn out to be
correct, but they can be intelligent.
It is true that the market is brutal to most of the people
who challenge it. But so is Mount Everest, and that should
not – and does not – stop people from trying to reach the
top. What is expected of a mountain or a market is only
that it has no favourites – that it treats all challengers as
equals.
Trading can be an intellectual stimulation, as well as a
way to make money. Played well, it demands skills of the
highest order, and skills the trader must work very hard
to acquire. A well-conceived and executed transaction
is a thing of beauty, to be experienced, enjoyed, and
remembered. It should have an essence transcending
monetary reward.
The stock market provides the greatest opportunity
on earth for financial reward. It also teaches great lessons
to those who win and those who lose, an education
that goes well beyond trading and investing. Without a
doubt, the stock market gives you incredible exhilaration
when you win and deep humility when you lose. It is the
greatest game on earth. «
Excerpts taken from Trade Like a Stock Market Wizard:
How to Achieve Superperformance in Stocks in any
Market, Copyright 2013 Mark Minervini – published by
McGraw Hill.
Many of life’s failures are people who did not realise how close they were to success when they gave up.
Thomas Edison
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