Mark Minervini Trade & Think Like a Champion

Updated: May 25, 2021

Mark Minervini's sequel to Trade Like a Stock Market Wizard



Mark Minervini, Author of Think & Trade Like a Champion.

The sequel to his previous book, and our subsequent review, of Trade Like a Stock Market Wizard.

Mark shot to stardom in the trading community through his success in the US Investing Championship by achieving a 155% return in 12 months.

Arguably the most respected stock trader of the modern era, Mark carries the torch for other legendary traders that have passed before him. Let’s take a look at this sequel for more hidden gems.

Mark says there are two types of trader within all of us, a builder, and a wrecker.

The builder has a disciplined methodical approach, and trusts that results will come with consistency.

Always learning from mistakes and takes encouragement from new information.

Forever optimistic, knowing that through discipline and a continually evolving process good things will come.

The wrecker has a different mindset, always looking for someone to blame if the strategy fails in the short term. Often driven by ego, fixated on results, and never really committing to the process.

Mark however points out that all of us have each of these traits within us, it just depends on which one you choose to feed that determines the trader you will be.

Marks Says:-

“Even a good strategy will do you no good if you feed the wrecking ball”

Adopting the right mindset is highly important if you want to put the following chapters into use.

Mark drives home the importance of embracing the trading process, and points to a study of Violinists by a team of psychologists in Berlin.

They found that there was a direct correlation between the number of hours practiced and the level of ability. Notice here how the professionals and best performers accrued 10,000 hours by the age of twenty, down to teachers at around 4,500 hours.

Mark suggests that to become a great trader you need to put the hours in, specifically aiming at the constant learning, refining and examination of the process.

Mark says;-

“If you put your heart, soul, and mind into something, then why not do everything you can to succeed in a big way”

Once you adopt the right mindset and are willing to put the time and effort into the trading business, you need to create a plan. There are very few successful businesses that do not follow some form of strategy.

Mark says;

“Trading is a serious business with real money on the line. Why would you go into it without a well-thought-out plan of action? Yet, most people do”

Firstly, Mark defines his objective followed by a road map of how to achieve it.

The plan or strategy will be constantly evolving depending on the feedback you get from your data recording and analysis. But from the research and prior back testing, your rules should be objective and fixed until your information tells you otherwise.

You need a buy signal, a mechanism for entering the trade.

You need to establish your position size and consider how long you are willing to have the capital allocated to the position, and over what period of time.

Some form of in-trade risk management needs to be determined should the position turn against you. Where will your stop loss be positioned, will it be a trailing stop? Have the fundamentals changed?

Not forgetting, how will you sell to lock in profits? Will it be a fixed percentage? Will it be a certain chart pattern? All these considerations need to be predetermined in the plan ‘before’ placing a trade.

Once the trade is complete, it needs to be recorded for continual analysis and continual optimisation of the strategy. Once this process is mastered, you can reach your objective and become a king of your trading business.

Throughout the whole process, Mark emphasises the importance of capital preservation.

You must limit your losses on each individual position which will ultimately protect your trading account. If you risk too much on any individual position, you risk losing the game and ultimately your capital.

Having a plan will not only help protect your capital base, but encourage discipline and provide a foundation for continual analysis.

Mark says;

“By defining my parameters ahead of time, I establish a basis for knowing whether my plan is working or not”.

The next part of the video will be focused on Mark’s trading strategy, his theory, and how his super performance created huge profits.

Mark provides an order of importance before entering a trade, first he will define his maximum risk and place a stop loss accordingly.

Next, he looks to protect his bottom line after an initial move by raising the stop loss to break even.

Thereafter he protects his profits by using a trailing stop loss as the price increases.

Notice how each of these priorities are all based on either limiting the loss of the initial capital or limiting the loss of gained capital. The overall priority is therefore protecting capital no matter what stage the trade is in.

Mark says:-

“The moment the price hits the stop-loss, I sell the position without question. Once I’m out of the stock, I can then evaluate the situation with a clear head”

Arguably the most important statistic in trading is the risk reward ratio. Mark says you should always risk less than you expect to gain, and he gives a coin toss example to make the point.

Each coin toss has a 50% chance of either landing on heads or tails, but if someone offered to give you 10 cents for landing on heads and lose 5 cents for landing on tails, how many times would you want to toss the coin? The answer would be as much as you could.

Yet many new traders have the ratio in reverse, they might for example risk 10% to win 5%, and with a 50% strike rate you are destined to lose huge amounts of cash in the long term.

This simulator shows exactly how an account balance would look with this ‘new trader’ ratio.

Let’s call a 10% loss $100 and a 5% win $50, with a 50% strike rate.

If you took a trade every day, after 365 days you would have lost on average $13,000.

But if we flipped the ratio to risk 5%, looking to win 10%, with the same 50% strike rate, we would win on average over $6000 over the same period.

This provides a simple example behind the rationale Mark makes when he says that your reward must outweigh your risk. A rationale that is the foundation of Marks strategy and the reason why risk management is so important.

Mark uses a batting average when he describes the need to build in failure.

If your analysis suggests that you will lose 4 out of 5 swings, you have built in a failure expectation, which is good. However, you must also have an expectation of the return when you have a winning swing. In this example each losing swing has a value of minus 1, but the winning swing has a value of 5. Therefore, despite building in a failure rate of 80% you still have a positive expectation.

A common term used in the trading arena, which this theory also confirms, is to ‘keep your losses small and let your winners run’.

Mark says:-

“Maintain a positive expectancy, and you’re a winner. My results went from average to stellar when I finally made the choice that I was going to make every trade an intelligent risk/reward decision.”

Keeping a track of your progress (or batting average) is extremely important. Mark provides a chart of a typical monthly tracker he uses to keep score.

He records the average gain, the average loss and the strike rate.

The summary for the year provides the overall performance. In this example we can see the strike rate, the average gain and again the average loss. This provides the all-important win to loss ratio.

Mark says;

“Tracking this data will keep you honest and give you a true read on what’s happening within your trading. This is the discipline of champion traders”.

After keeping score and summarising the results, we can then dig deeper into the data to see if there are areas for improvement. For example, a distribution of results can be plotted into a bell curve which Mark provided here.