Mark Minervini’s strategy for finding top-performing stocks is built on combining strong fundamentals and technical momentum. His approach focuses on identifying stocks in "superperformance phases", where improving earnings, profit margins, and institutional buying drive significant price gains. Here’s a quick breakdown of his method:
- Key Traits of Winning Stocks:
- Earnings per share (EPS) growth of 20–50% or more.
- Revenue growth of at least 20%.
- Expanding profit margins.
- Institutional accumulation (e.g., increased buying by mutual funds).
- High relative strength (RS) ratings, ideally above 70.
- Technical Criteria:
- Stocks must trade above the 50-day, 150-day, and 200-day moving averages.
- The 200-day moving average should be rising for at least one month.
- Stocks should be within 25% of their 52-week high.
- Look for Volatility Contraction Patterns (VCPs), where price fluctuations tighten before a breakout.
- Risk Management:
- Use stop-loss orders below key support levels.
- Maintain a risk-to-reward ratio of at least 2:1.
- Avoid averaging down on losing trades; instead, add to winners.
- Industry Focus:
- Prioritize stocks in top-performing industry groups.
- Look for sectors with strong capital inflows and leading stocks within those sectors.
- Execution:
- Wait for breakout confirmation above resistance levels on increased volume.
- Use trading platforms and tools with low latency for precise execution.
Minervini’s disciplined approach blends financial metrics, technical patterns, and strict risk management to identify and trade market leaders effectively.
Profitable Trading Strategy: Master the Volatility Contraction Pattern (VCP) Minervini’s Favourite.
Basic Requirements for Stock Screening
Before Mark Minervini dives into technical patterns or chart analysis, he starts with strict fundamental criteria to narrow down thousands of stocks. These requirements act as the first filter, ensuring only companies with strong business fundamentals make it to the next stage of his selection process.
The screening focuses on financial metrics that highlight operational strength and growth. Instead of relying on subjective opinions or market hype, these benchmarks provide clear, measurable indicators of businesses that are genuinely expanding and profitable. From there, deeper analysis of earnings, sales growth, and operational efficiency takes place.
Earnings and Sales Growth Requirements
For Minervini, earnings per share (EPS) growth is a cornerstone of his analysis. He looks for stocks with EPS growth of 20–50% or more. As Deepvue explains:
"A minimum of 20-50% growth in earnings per share (EPS), often preferring stocks with even higher EPS growth rates." – Deepvue
This high bar ensures that only companies with the potential for significant price appreciation are considered.
In addition to earnings, Minervini requires revenue growth of at least 20%. Deepvue further notes:
"Minervini also considers companies with strong sales growth (20% or more)." – Deepvue
The combination of strong earnings and sales growth signals that a company is expanding its operations rather than simply cutting costs. This is a sign of rising market demand and sustainable competitive advantages.
Minervini also pays attention to quarterly earnings surprises, which indicate effective management and better-than-expected performance. Companies with upward earnings revisions of 5% or more often reflect improving industry conditions. ChartMill highlights this point:
"The author argues that companies for which the upward revision was at least 5% or more, these actually perform better than average." – ChartMill
To further validate a stock’s potential, Minervini examines profit margins and institutional activity alongside these growth metrics.
Profit Margins and Institutional Buying
Expanding profit margins are a clear signal of operational efficiency and pricing power. When sales growth is accompanied by widening margins, it confirms strong fundamentals.
Another critical factor is institutional accumulation. Large institutional investors, such as mutual funds or pension funds, provide the sustained buying power that drives stock prices higher. Signs of institutional buying include patterns where trading volume increases on up days and decreases on down days, suggesting these players are gradually building their positions.
Institutional involvement not only adds credibility to a stock’s growth story but also aligns with Minervini’s criteria. These investors conduct extensive research before committing capital, reinforcing the fundamentals that Minervini screens for.
Additionally, high relative strength ratings often accompany institutional accumulation, as strong buying pressure pushes stocks to outperform their peers. Similarly, a rising 200-day moving average reflects consistent interest from these major players, highlighting the stock’s long-term strength.
Technical Analysis and Minervini’s Trend Template
Once the fundamental screening is complete, the next step involves applying Minervini’s Trend Template to pinpoint stocks with strong technical setups. This template relies on specific chart-based criteria to confirm upward momentum and filter out weaker candidates before they make it into a portfolio.
The Trend Template acts as a technical safeguard. Instead of relying on instincts or market chatter, it uses measurable benchmarks to ensure that only stocks with solid price strength and institutional backing are selected. Each element of the template has a distinct role in assessing a stock’s technical health.
Moving Average Rules and Market Strength
A key element of Minervini’s approach is the "stacked" moving average formation. Here’s what that means: the 50-day, 150-day, and 200-day moving averages should all be trending upward, with the stock trading above each of them. Additionally, the 200-day moving average must have been rising for at least one month. This setup helps eliminate stocks that might be experiencing a short-lived rebound from oversold levels but lack genuine long-term strength.
Another critical factor is that the stock should be trading within 25% of its 52-week high. Staying close to its recent peak suggests the stock has maintained momentum and hasn’t suffered significant setbacks due to profit-taking or adverse news. Together, these criteria create a solid foundation for evaluating a stock’s relative performance and price patterns.
Relative Strength and Volatility Contraction Pattern
With moving averages in place, Minervini further validates a stock’s setup by examining its relative strength and volatility patterns. A relative strength rating of 70 or higher is required, with ratings above 90 being ideal. This rating measures how a stock’s price performance compares to the broader market over the past year. High relative strength indicates that the stock is outperforming its peers, signaling strong demand.
This relative strength benchmark is especially useful for identifying stocks that institutional investors are actively buying. Large-scale buying by funds generates consistent upward pressure, which often leads to higher relative strength ratings. Since institutional activity is a key driver of future price surges, relative strength serves as a reliable indicator of potential performance.
Minervini also places significant emphasis on the Volatility Contraction Pattern (VCP). This pattern emerges when a stock’s price fluctuations gradually shrink over time, forming a tightening structure on the chart. A VCP reflects diminishing selling pressure while buyers remain willing to pay higher prices, signaling a balanced setup for future gains.
Typically, the contraction phase in a VCP spans several weeks to a few months. The pattern often resolves with a breakout above resistance on increased volume, signaling renewed buying interest. During this phase, volume tends to shrink during pullbacks and expand during rallies. This behavior creates an ideal entry point in Minervini’s strategy.
Controlled pullbacks are another hallmark of the VCP. Rather than sharp, panic-driven declines, the stock should exhibit measured selling that stays above key support levels. This steady behavior suggests that long-term investors remain confident, further reinforcing the stock’s technical strength.
Entry Points, Risk Management, and Trade Execution
Once a stock meets Minervini’s criteria, the next step is to exercise patience and wait for confirmation. Jumping into trades prematurely, often based on incomplete setups, can lead to disappointing results. Minervini’s approach underscores the importance of waiting for clear signals before committing any capital, even if the stock shows strong fundamentals. This strategy blends fundamental analysis with precise, tactical execution.
Breakout Confirmation and Volume Analysis
A key entry point is when the stock breaks decisively above its VCP (Volatility Contraction Pattern) resistance level. Waiting for this breakout confirmation helps ensure the move is legitimate, reducing the risk of acting on false signals.
Stop-Loss Placement and Risk-to-Reward Ratios
Stop-loss orders are essential for protecting your capital. Place the stop-loss just below the VCP base or the most recent support level, aiming for a risk-to-reward ratio of at least 2:1 to 4:1. Minervini prioritizes strict risk management, ensuring that any single losing trade has a minimal effect on the overall account balance. It’s critical to set your stop-loss level before entering a trade to maintain discipline.
The risk-to-reward ratio plays a central role in evaluating trades. For instance, if a potential loss from a stop-loss is $1,000, the trade should offer the possibility of earning at least $2,000 to $3,000 in return. This disciplined approach ensures that the potential rewards justify the risks taken.
As the stock moves in your favor, use trailing stops to lock in profits. This technique allows you to capture gains while still giving the stock room to grow.
Avoid the temptation to average down on losing positions. Instead, add to your holdings only when the stock demonstrates continued upward momentum. This reinforces the practice of allocating more capital to winning trades rather than trying to rescue losing ones.
Using Trading Technology for Minervini’s Strategy
Minervini’s strategy relies on precise timing, especially for breakout entries. As ChartMill explains:
"The moment the stock breaks upward out of its most recent contraction is the time to take a position. It is the most optimal price point from a risk/reward standpoint."
This level of precision makes modern, high-performance trading technology – like VPS hosting – an essential tool for traders aiming to implement the strategy effectively.
Why VPS Hosting Matters for Trading
When it comes to executing breakout trades, speed is everything. VPS hosting ensures ultra-low latency, with providers like QuantVPS offering 0–1ms latency and a 100% uptime guarantee. This means your orders hit the market faster than they would with standard home internet, reducing the risk of missing critical price points during fast-moving trades. Every millisecond counts when a stock breaks through resistance with heavy volume.
Additionally, DDoS protection secures your connection against cyber threats, ensuring uninterrupted access to trading platforms even during volatile market conditions. This reliability is crucial when managing rapid market movements.
QuantVPS offers scalable plans tailored to different trading needs. For example:
- VPS Pro: 6 cores and 16GB RAM, ideal for running multiple charts and trading tools.
- VPS Ultra: 24 cores and 64GB RAM, designed for more demanding tasks like intensive market screening and analysis.
This dedicated infrastructure ensures your trading platforms and tools operate smoothly, without performance bottlenecks.
Seamless Integration with Trading Platforms
QuantVPS integrates seamlessly with leading trading platforms, enhancing your ability to implement Minervini’s strategy:
- NinjaTrader: Advanced charting tools make it easier to spot key patterns like the Volatility Contraction Pattern (VCP) and monitor moving averages. The platform can continuously scan for setups, even when you’re away from your desk.
- MetaTrader: Take advantage of automated trading features through Expert Advisors, which can screen for fundamental criteria such as earnings growth and institutional buying trends.
For traders monitoring multiple aspects of the market, QuantVPS supports multi-monitor setups. The Pro plan accommodates multiple screens, while the Dedicated Server plan supports up to six monitors – perfect for tracking sector rotations, individual stock patterns, and broader market trends simultaneously.
To protect your trading environment, automatic backups safeguard your custom configurations, including watchlists, screening setups, and trading templates. This ensures your system remains intact and recoverable, even if unexpected issues arise.
Finally, global accessibility allows you to manage your Minervini-based trading system from anywhere with an internet connection, ensuring consistent performance no matter where you are.
Industry Group and Market Timing Analysis
Mark Minervini emphasizes that finding market leaders goes beyond analyzing individual stocks – it starts with focusing on strong industry groups.
Identifying Top-Performing Industry Groups
The first step is to pinpoint the industry groups attracting the most capital. Instead of relying on market capitalization, Minervini advises identifying market leaders based on their profit and sales growth.
Tools that analyze sector performance are invaluable here. They reveal where money is flowing, allowing you to zero in on industries in the top quartile for performance. This approach ensures your stock picks come from areas with solid momentum. Use filters to screen for stocks with high Relative Strength (RS) ratings and strong recent performance metrics. To refine your selection further, compare RS scores within the same sector. This helps identify true leaders instead of stocks merely benefiting from broader market movements.
Another useful technique involves monitoring the number of new 52-week highs and lows on a weekly, sector-by-sector basis. This method highlights the sectors driving market uptrends. Minervini also champions a "Bottom-Up" approach to stock selection. Kristoff De Turck, Co-founder of ChartMill, explains this method:
"The Bottom‑Up approach assumes that the best‑performing stocks are ahead of the general market trend. True market leaders reach their bottom in a bear market faster than the indexes to which they belong. They are the first to break out of stage 1 and are already in the rising stage 2 phase at a time when the general indices are still forming their bases."
In essence, look for stocks consolidating in Stage 2 (uptrend) and poised for another breakout. These are the setups that signal a new bullish trend. Market-leading stocks often enter Stage 2 before the broader indices, making them early indicators of market strength.
To enhance this strategy, align your trades with broader market trends.
Market Trends and Trade Timing
Once you’ve identified strong industry groups, timing your trades becomes the next critical step. Success hinges on trading when major indices show clear upward momentum. This means focusing on stocks breaking out from Stage 1 (consolidation) into Stage 2 (uptrend) while the broader indices are still stabilizing.
After narrowing down strong industry groups, ensure your trades coincide with confirmed uptrends in major indices. Once you’ve screened for potential stocks, manually compare them with their industry peers to confirm their strength. Combining strong industry group analysis with precise trade timing greatly improves your chances of selecting winning stocks.
Key Takeaways from Minervini’s Method
Mark Minervini’s approach combines strict fundamental criteria with sharp technical analysis to identify market-leading stocks. Here’s a closer look at the core elements of his method.
At its core, Minervini’s strategy begins with fundamental analysis. He looks for companies showing at least 25% annual earnings growth, accelerating sales, and strong profit margins. These metrics ensure that the focus remains on businesses with genuine growth, not just stocks showing attractive technical patterns.
On the technical side, Minervini uses his Trend Template to determine the right timing for trades. Stocks must meet specific criteria: trading above key moving averages (the 150-day moving average above the 200-day), priced within 25% of their 52-week highs, and ranking in the top 30% for relative strength. This process filters out weaker stocks and narrows the focus to those leading the market.
Minervini also emphasizes the importance of identifying top-performing industry groups. He zeros in on the strongest sectors and then selects the leading stocks within those groups to align with broader capital flows.
One of the pillars of his success is disciplined execution and risk management. Minervini famously achieved a 155% return in the 1997 U.S. Investing Championship with $250,000 and an even more impressive 334% return in 2021 with $1,000,000. These results were achieved with a strong focus on risk control, including the use of tight stop-losses, favorable risk-to-reward setups, and well-timed entries at breakout levels.
Another key element of his method is the use of reliable trading technology. High-speed trading platforms like NinjaTrader and TradeStation, paired with ultra-low latency VPS hosting (0–1ms latency and 100% uptime), are essential for executing trades at the exact moment of a breakout. Minervini’s strategy often involves buying at the "Pivot Point", where a stock breaks out of a Volatility Contraction Pattern. This demands real-time data and lightning-fast execution to seize opportunities at the precise breakout moment.
FAQs
How does Mark Minervini combine fundamental analysis and technical indicators to find top-performing stocks?
Mark Minervini’s strategy combines fundamental analysis with technical indicators using his Specific Entry Point Analysis (SEPA) methodology. This method examines a stock’s financial performance, focusing on factors like earnings growth and revenue trends, while also studying price movements, trading volume, and other technical signals to determine the best entry points.
By merging these approaches, Minervini targets stocks with solid financial foundations that also exhibit momentum and align with favorable market trends, enabling traders to make well-informed and confident decisions.
Why is institutional buying important in Mark Minervini’s stock selection process?
Institutional buying is a key element in Mark Minervini’s approach to picking stocks. Why? Because when major players like mutual funds or hedge funds pour substantial money into a stock, it often sparks the momentum needed for significant price moves.
This influx of investment boosts demand, which can result in more stable and pronounced price trends. For traders, spotting stocks that show clear signs of institutional interest can serve as a strong signal of potential growth and an important clue when hunting for promising opportunities.
How can traders use VPS hosting to apply Mark Minervini’s strategy and improve trade execution?
Using a Virtual Private Server (VPS) can play a crucial role in executing Mark Minervini’s trading strategy more effectively by offering faster and more reliable trade execution. A VPS creates a high-speed, low-latency environment for your trading platform, helping to minimize delays caused by local internet disruptions or hardware limitations.
This advantage is particularly valuable when applying Minervini’s approach, which often demands precise timing and quick reactions to stock market movements. By using a VPS, you ensure seamless access to your trading platform, execute trades more quickly, and maintain a competitive edge – essential elements for successfully implementing his strategies.
