Think and Trade Like a Champion Think and Trade Like a Champion The Secrets, Rules & Blunt Truths of a Stock Market Wizard MARK MINERVINI Access Publishing Group, LLC Copyright © 2017 by Mark Minervini. All rights reserved. This book, or parts thereof, may not be produced in any form without permission from the publisher; exceptions are made for excerpts used in printed reviews and other media-related materials as long as proper attribution is made. The publisher and the authors make no representations or warranties with respect to the accuracy or completeness of the contents of this work and specifically disclaim all warranties, including without limitation warranties of fitness for a particular purpose.
No warranty may be created or extended by sales or promotional materials. The advice and strategies contained herein may not be suitable for readers’ situations. Readers should consult with a professional where appropriate. Neither the publisher nor the author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
ISBN 978-0-9963079-3-2 (pbk) ISBN 978-0-9963079-4-9 (ebk) Printed in the United States of America First Edition 10 9 8 7 6 5 4 3 2 1 Contents INTRODUCTION First Steps to Thinking and Trading Like a Champion SECTION 1 Always Go in with a Plan SECTION 2 Approach Every Trade Risk-First SECTION 3 Never Risk More Than You Expect to Gain SECTION 4 Know the Truth About Your Trading SECTION 5 Compound Money, Not Mistakes SECTION 6 How and When to Buy Stocks—Part 1 SECTION 7 How and When to Buy Stocks—Part 2 SECTION 8 Position Sizing for Optimal Results SECTION 9 When to Sell and Nail Down Profits SECTION 10 Eight Keys to Unlocking Superperformance SECTION 11 The Champion Trader Mindset About the Author Index Acknowledgments INTRODUCTION First Steps to Thinking and Trading Like a Champion You become what you think about all day long. —Ralph Waldo Emerson Think and Trade Like a Champion will help you take control of your trading by following timeless rules and proven techniques. You will receive answers to some of the toughest and most confusing questions, such as when to hold a short-term winner for a longer-term gain; when to cut your loss even before your stop is hit; how to establish the optimal position size; how and when to buy and sell; and exactly what to examine during post-trade analysis to improve your weaknesses and build a solid foundation for success. In my first book, Trade Like a Stock Market Wizard (McGraw-Hill, 2013), I provided a foundation for those interested in learning my SEPA® trading strategy.
While I never set out to write a two-volume set, this book contains many of the things I could not fit in the first book due to space limitation. In the following pages, I divulge my personal recipe for trading success based on 33 years of experience and real-life application; this invaluable “how-to” on the strategy led me to become a U. Investing Champion and turn a few thousand dollars into a multimillion-dollar fortune. You may not have three decades of experience like me, but you have something else that is very valuable, something that can shorten your learning curve dramatically: the opportunity to use my knowledge as your starting point.
This means you have the opportunity to achieve even greater success than I have. Now, maybe you’re thinking, Mark became a champion investor when trading was easier, or, Mark is naturally gifted or had an upbringing that gave him certain advantages. Nothing could be further from the truth. I started out poor with little education or capital.
When I began trading, commissions were hundreds of dollars per trade versus just $5 or $10 today. Bid and ask spreads were often $2 or $3 versus only pennies now. And most of all, there was little access to superior knowledge. Today you have direct access to everything you need—tools and knowledge that were once only available to elite Wall Street pros.
It’s a great time to pursue stock investing. However, you should know that even the right knowledge, hard work, and practice will not necessarily get you any closer to trading success. People who work hard but practice the wrong things will only engrain bad habits and perfect faulty mechanics. In Think and Trade Like a Champion, you will learn the correct way to practice—exactly what to do and what to avoid.
I’m here to tell you that your own ability is far greater than your wildest imagination. I guarantee you are operating at only a fraction of your true potential. That’s true in life, and it’s certainly true for trading. Let me assure you, anyone can achieve superperformance in stocks if they set their mind to it.
It requires the right knowledge, a commitment to the learning process, and the will to persist. It’s not going to happen overnight, but with the right tools and the right attitude, you can do it. DECIDE TO DECIDE In the stock market and in life, we choose to win and we choose to lose. That’s right! We lose because we want to lose, and we win when we decide that we’re going to be winners.
While this statement may strike you as incorrect or patently unfair, I know it to be true. In more than three decades as a full-time stock trader, I’ve witnessed people who lose because they want, consciously or unconsciously, to fail. And I’ve seen those who decided once and for all that they were going to be successful, and they transformed themselves from mediocre to extraordinary. Winning, without a doubt, is a choice! If you don’t accept this, then, by default, you must believe that you have no control over your destiny.
And if that’s true, then what’s the point of even trying to succeed at anything—just to see if you get lucky? Everyone has a champion trader inside. It’s just a matter of knowledge, desire, and commitment. Most of all, you must believe in your own abilities. I assure you that you can accomplish much more than you think you can in trading, and with far less risk than the so-called experts would have you believe.
But until you accept that winning is a choice, you will not be able to realize your full potential. Nor will you be in control of your destiny, because you have not taken full responsibility for the outcome; therefore, you are not fully empowered. Those who choose to win seek successful role models, develop a road map for success, and accept setbacks as valuable teachers. They put a plan into action, learn from their results, and make adjustments until they achieve victory.
Winners are people who can’t stand not to win. Some start off that way, while others eventually get fed up with being mediocre and decide that they’re not going to accept falling short of their dreams anymore. This attitude probably goes against what you heard as a child: Don’t be a sore loser. In my experience, you show me a “good” loser and I’ll show you someone who is likely to lose.
If you want to trade like a champion, you need to think like one. Until you convince yourself that success is a choice, you’re a defeated winner. It doesn’t mean that you are a loser as a person; it simply means that you have not yet learned or accepted the truth about winning. Champions don’t leave greatness to chance.
They decide that they are going to be winners, and they live each day with that goal in focus. In 1990, I made the choice to become a champion stock investor. That was nearly seven years after I made my first trade. That’s right, seven years! I dabbled for almost a decade.
And as you might guess, up to that point, my results were what you would expect from someone who dabbles. Then in March of 1990, I decided to make a firm commitment to become the best stock trader in the world. I’ve been working at it ever since, and the rest is history. A TALE OF TWO WOLVES There are two types of traders inside you and me and everyone.
One I call the builder—disciplined and process-driven. The builder is focused on procedure and perfecting the method. The builder trusts that the results will come if he gets the process right. Mistakes are viewed as teachers, constantly providing valuable lessons in a continuous feedback loop.
When the builder makes a mistake, it’s taken as encouragement: That’s one I won’t make again. Ever optimistic, the builder looks forward to the day when results are achieved— good or bad—because the process is constantly being improved. The other trader is what I call the wrecking ball. Ego-driven, the wrecking ball is fixated on results; if they don’t come right away, he gets discouraged.
If a mistake is made, the wrecking ball beats up on himself or looks for someone or something else to blame. If a strategy doesn’t produce winning results quickly or it goes through a difficult period, the wrecking ball tosses it aside and looks for a new strategy, never really committing to the process. A wrecking ball, as you might guess, has tons of excuses and rarely takes ownership of the outcome—and as a result, never builds anything lasting or wonderful. But remember what I said in the beginning.
You are not one or the other. You have both the builder and the wrecking ball inside you, just as every human being has the capacity for love and compassion, and also for hatred and harm. So, which one is going to determine your results: the builder or the wrecking ball? To answer that, I refer to one of my favorite stories told by Pema Chödrön in her book Taking the Leap: Freeing Ourselves from Old Habits and Fears: “A Native American grandfather was speaking to his grandson about violence and cruelty in the world and how it comes about. He said it was as if two wolves were fighting in his heart.
One wolf was vengeful and angry, and the other wolf was understanding and kind. The young man asked his grandfather which wolf would win the fight in his heart. And the grandfather answered, ‘The one that wins will be the one I choose to feed.’” So it will be with you. I consider myself to be an enlightened trader.
First, I recognize that I have both the builder and the wrecking ball within me. But, I choose to feed the builder and starve the wrecking ball. To be mindful of this daily is even more important than a strategy or the mechanics of trading. Because even a good strategy will do you no good if you feed the wrecking ball.
One of my favorite movie scenes is from Two for the Money, when Walter Abrams (played by Al Pacino), a degenerate gambler who runs a New York tout service (for betting on sports), attends a Gamblers Anonymous meeting with his new hotshot handicapper Brandon Lang (who goes by the name John Anthony) (played by Matthew McConaughey). After listening to Leon, one of the ex-gambler-attendees, speak, Walter gives the following speech—very funny and entertaining, and also very true: I know where you’re coming from, Leon—believe me, I know. I heard your story, and it’s something I can relate to. If I learned anything, it’s that gambling is not your problem, not even close.
I don’t know how to say this without sounding a little rude, but, you’re a lemon, Leon! Like a bad car, there’s something inherently defective in you—and you, and me, and all of us in this room; we’re all lemons. We look like everybody else, but what makes us different is our defect. You see, most gamblers when they go to gamble they go to win. When we go to gamble, we go to lose.