- First steps to think and trade like a champion:
- To get the PDF version of this book click here
- Part 1: Always go in with a plan:
- Part 2: Deal with the risks of each transaction first.
- Part 3: Never risk exceeding your expected profit.
- Part 4: Know the truth about your trading
- Bass Technique:
- Final thoughts about the book “Think and trade like a Champion”
- Our favorite quote in Trade and think like a champion
Summary of Think and trade like a Champion
This book absolutely changed our trading. If you want to make money through swing trading, this book is worth reading. Literally, as soon as we finished reading this book, we started to make money trading and raised 45% in my account within 6 months according to the principles outlined here. Minervini works in a similar way to William O’Neal (author of How to Make Money in Stocks and creator of the CANSLIM method) and David Ryan (student of Bill O’Neal and American investment champion). Minervini is also a close friend of David Ryan, and they organized the Master Trader Program (I participated in the program for the first time in 2020).
First steps to think and trade like a champion:
To get the PDF version of this book click here
This book summarizes Minervini’s decades of experience as a successful trader combining technical and fundamental analysis. The introduction is very inspirational. If you doubt yourself as a trader, please read the introduction carefully and you will feel that everything is fine. The “championship” mentality is very important to Minervini, and I can say that he is so successful as a trader because of this mentality. It really makes you think that anyone can become a trader, not by talent but by hard work. I have had this kind of internal struggle myself. My father works on Wall Street and he always tells me that I will never be a successful trader at home because no one will make money like that. If you are not a mathematician or a genius, then there is no way to be good at trading. This goes further than the facts. As Minervini himself said: “My ultimate success did not come from talent. Unconditional perseverance and learned discipline have led me to where I am today. (…) Those who have achieved great success in everything have the same attitude: Either persist until it happens, or try to die. Quitting is not an option. “
Part 1: Always go in with a plan:
Minervini explained how important it is to develop a plan for each business. “Before the exchange, I have formulated countermeasures to meet almost all possible developments.” Criteria, such as if the transaction is not good for you, where to withdraw from, when to sell, if you stop, when to buy stocks, Weak selling to protect profits, etc.
The main difference between amateurs and professionals is that professionals will be stopped once or twice and will be completely out of touch with the deal. A fan can be stopped twice, and will not work when it is established again for the third time.
Once a position is bought, it must move quickly. The ideal situation is to break through a base and a few days of follow-up. The best trades will resume with a higher volume within a few days. Never let more than 20% of profits become losses. Look for tennis balls instead of eggs. Minervini describes the best action as a tennis ball, breaking and sitting back with a slight volume, and bounce again like a tennis ball.
The winning stocks will exhibit the following characteristics:
- Follow the price trend after the breakthrough.
- There are more rising days than falling days.
- Tennis action: a tough callback after the price callback.
- High-day trading volume is strong, and low-day trading volume is strong.
- There are more good closures than bad closures.
When not to sell expansion stocks.
David Ryan’s MVP indicator: Momentum-the stock has risen for 12 days in 15 days.
volume : Within 15 days, the transaction volume increased by 25% or more.
The stock price has risen by 20% or more in 15 days (the greater the volatility, the stronger the volume, the better).
- Observe the 20-day line shortly after the basic breakout, you must maintain the line instead of destroying it.
- The three lower lows of volume should catch your attention.
- Low volume, high volume input-bad signal.
- Violations after breaking up: low volume.
- Off-base-high volume at 3 or 4 lower lows, no support action.
- There are more bearish days than bullish days.
- There are more bad closures than good closures.
- The close was below the 20-day moving average.
- It closed below the 50-day moving average, with large trading volume.
Squats and reversal Recoveries
Crouching is when the stock breaks through the pivot point but falls back within its range and closes the high of the day, thereby squatting. Sometimes the stock will reverse and quickly rebound. This can be 2 to 10 days. In the recent market, this situation often happened to me (October to December 2020), with great volatility and many stocks being snapped up. Some people go back a few days later and quit, some people just fail.
Hesitation and regret.
All businessmen vacillate between indecision and regret. Minervini claims that this dilemma stems from not having a clear timetable and reliable plan in advance. One of the rules I got from this book that really helped me in trading is, if in doubt, sell 50% of the position. In this way, if you go higher, you can still profit from it. If it goes against you and reaches its peak, you will still make a profit.
Part 2: Deal with the risks of each transaction first.
When trading, most people think “How much will I make if I go up by X%?” Minervini challenges us not to think so. If this action is not good for me and my maximum is reached, how much am I willing to lose? Many people say that they have to take a certain risk when trading. When the stock reaches half of the stop loss, they are out. This is not a good trading method. On average, a good trader is correct 50% of the time. The best traders can pick 60-70% of profitable stocks in a healthy market.
- If your goal is high performance, then large losses are unacceptable and productive.
- Always trade with a stop loss.
- Don’t become a “reluctant investor”.
Part 3: Never risk exceeding your expected profit.
To set a proper stop loss, you need to know your average profit, not just the profit you expect in each trade, but what you can expect to be at an average level The digital time that appears on the screen. Minervini believes that you have to get used to building on “failure.” The lower the loss relative to the gain, the better. It is best to have a batting rate of only 25% (you are wrong 75% of the time), but take a very small loss and become a big winner. Then he began to study the percentage of best wins and losses he determined based on the average number of shots per shot. It’s interesting. This is the table for this section:
Think and trade like a Champion
I am a member of Minervini Private Interview, and he constantly emphasizes the importance of risk management. He is very good at risk management, which is the most important part of successful trading.
Part 4: Know the truth about your trading
For Minervini, tracking your trading figures is the most important thing for successful trading. When I first started as a trader, I just traded and checked my profit and loss to measure my success. This is too limited… Now I have an Excel that can track every transaction and tell me in real time what my batting rate is, the number of days I have been in the transaction, etc.
As a member of MPA (Minervini Private Access), we provide you with patented technology that allows you to track your business results. I don’t use it because I don’t want to copy work record operations on my own spreadsheet and Minervini platform. But if you are not good at Excel, it is very useful.
The following are examples of Minervini’s monthly tracking, as highlighted in this chapter:
As a trader, some basic statistics you must track are:
average profit, average loss, win/loss rate, average hit rate (percentage of winning trades), adjusted win/loss rate (adjusted for average hit rate) , Greater gains, greater losses, retained earnings days, retained losses days.
Another important statistic mentioned by Minervini is turnover. Compared with a smaller turnover with a higher profit, a higher turnover with a relatively smaller profit may mean a higher return. This is why many day traders get a 1000% return (although most of them have failed miserably after that).
To compound or not to compound in ” Trade and think like a champion “
This part is very confusing to me, because Minervini provides convincing evidence that compounding your profits can also cause devastating losses. So his advice is not to aggravate it. So, for example, if you trade a 100k account and risk 1% in each transaction, that would be $1,000. If you are up 50% in your account, then the 1% risk is no longer $1,000, but now $1,500. As a member of MPA, if a) we add a substantial amount to the account, and b) our transactions have been positive, we are always advised to integrate our returns.
As you can see from the results, under the exact same batting rate and the same trading strategy, a calm trader will be negative compared to a trader who does not. According to my personal experience, I only start adding results after uploading a large amount of data. For example, one of my accounts has risen by 28% this year, and my profitable transactions have not grown as fast as before. So I made 800-1000 US dollars per transaction, and it took me longer to increase my account by 5-10%. So I started to increase the scale so that the winner would rise by $1,500-1,800. Once again, business is an art, depending on your style, but the research conducted by Minervini is very instructive.
How and when to buy stocks.
Understand the four cycles of the market: integration, accumulation, distribution, and surrender.
Look for stocks in an uptrend from phase 2: Cumulative Minervini mentioned its “trend template”, which is currently available in the MarketSmith software (another reason why I am a big fan of Marketsmith).
Volatility contraction pattern: This is the most important thing I learned in this book. This concept is universal, and it applies to almost all assets in almost any period. This greatly helped my operation. As the name implies, when the volatility on the right side drops, the price adjusts and is expected to break from this pivot point, a volatility contraction pattern will appear. Minervini likes to measure contractions, and usually looks for 3-4 contractions to verify the pattern.
As you can see, the price will adjust, the volatility will shrink and wait for the pivot point to enter. If you open the 5-minute chart, this will also happen during the day. This entry point is critical to determining the timing of the best low-risk transaction.
This is the second most important concept I learned in this book, followed by VCP. The low trap is a pivot point that appears before a complete cup and handle are formed. The stock started to sell off from recent highs and began to build on the right hand side.
This may be my n transaction settings. 1. This concept has greatly changed my trading. I strongly recommend all swing traders to master this chart setting. Sometimes if I miss the low trap entrance, I won’t exchange drinks and deal with the formation. This is a setting for more experienced traders, and it is difficult to detect early. If they are not clean and crisp, it is difficult for me to detect low traps.
When to sell:
- A new high for the final base of the fourth or fifth stage.
- During the later period of price action, the P/E ratio difference is two or more.
- Look for the top of the climax: If the stock rises 25-50% or more in the course of 1-3 weeks. Some people have improved 70% to 80% in 5 to 10 days. Calculate the number of days, and if there is an 8/10 day increase and the daily volume of the histogram is large (the highest ever), then start selling with this force.
- Once the stock is extended, the 6 to 10 days of accelerated rise, except for the 2 to 2 days of decline
- The highest day since the start of the movement.
- Wider daily broadcast from highest to lowest.
These are the main concepts emphasized in the sales chapter. The concept of P/E expansion is very interesting, and it is something I started to pay attention to. Normally, stocks that start to rebound and reach a higher climax will double their P/E ratio (if the P/E ratio is high or low, it doesn’t matter at all). If the stock’s price-to-earnings ratio is 50 when the stock is trading at 15 and the current stock price is 60 and the price-to-earnings ratio is 100, this may be a potential warning sign.
Final thoughts about the book “Think and trade like a Champion”
This is the best trading book I have ever read. 90% of my trading today is based on all the teachings in this book, and I can only thank Mark Minervini for writing it. I tried to review it without revealing too much. There are a lot of details in the book, you can view hundreds of examples, I suggest you read the book at least twice. What I like most about this book is that its concept is timeless. They worked 30 years ago and are still working now. They can work in almost any time frame.
Our favorite quote in Trade and think like a champion
Its just our opinion, but Mark will be a great coach. He is a good boss who motivates traders. When we read this book, we think nothing is impossible.