Think & Trade Like a Champion — Chapter Guide

Chapter 6 · the short version · what the chapter says, and the ideas worth keeping

📖 What this chapter is about

🧭 The frameworks it gives you

• Trend Template — A stock must meet all eight Trend Template criteria to be deemed in a confirmed Stage 2 uptrend. — Ch. 4, p. 4
• Trend Template — Criterion 1: The stock price must be above both the 150-day (30-week) and the 200-day (40-week) moving average price lines. — Ch. 4, p. 4
• Trend Template — Criterion 2: The 150-day moving average must be above the 200-day moving average. — Ch. 4, p. 4
• Trend Template — Criterion 3: The 200-day moving average line must be trending up for at least 1 month (preferably 4 to 5 months or longer). — Ch. 4, p. 4
• Trend Template — Criterion 4: The 50-day (10-week) moving average must be above both the 150-day and the 200-day moving averages. — Ch. 4, p. 4
• Trend Template — Criterion 5: The current stock price must be at least 25 percent above its 52-week low. — Ch. 4, p. 4
• Trend Template — Criterion 6: The current stock price must be within at least 25 percent of its 52-week high (the closer to a new high the better). — Ch. 4, p. 4
• Trend Template — Criterion 7: The relative strength (RS) ranking, as reported in Investor's Business Daily, must be no less than 70, but preferably in the 90s. — Ch. 4, p. 4
• Trend Template — Criterion 8: The current price must be trading above the 50-day moving average as the stock is coming out of a base. — Ch. 4, p. 4

🔢 Numbers worth remembering

🔍 Easy to mix up

• Trend Template Criterion 5 vs Trend Template Criterion 6: Criterion 5 requires price 25% ABOVE the 52-week low; criterion 6 requires price within 25% of the 52-week high.
• Trend Template Criterion 4 vs Trend Template Criterion 8: Criterion 4 tests the 50-day MA against the 150/200-day MAs; criterion 8 tests current price against the 50-day MA as stock exits a base.
• 200-day avoid rule vs Valeant 92% decline: 'More than 90% avoided' is the general principle; '92%' is the specific VRX decline from Sept 2015 low close below the 200-day MA.
• VCP contraction count (general) vs VCP contraction count (typical): 'Two to six' contractions generally appear in a VCP while 'typically two to four' is the usual observed range.
• VCP structural features vs Footprint quick reference: VCP distinguishing features are contractions/depths/volume; the footprint quick reference measures Time, Price, Symmetry.
• Netflix VCP-period gain vs Netflix since-IPO gain: 525% is the VCP move over 21 months; 3,400% is the gain since the IPO.
• Netflix footprint vs Meridian footprint: Netflix was a 3T/27W base; Meridian was a 4T/40W base. Do not mix the pairs.
• Meridian first pullback vs Meridian second pullback: First was $19→$13 (-31%); second was just under $17→below $14 (-17%).
• Meridian contraction percentages vs Meridian final pivot pullback: The corrections shrink 31%→17%→8%→3%; the final 3% pullback on very low volume formed the pivot buy point.
• Overhead supply source vs Profit-taker supply: Overhead supply is trapped buyers at a loss wanting breakeven; bottom-fishers with short-term profits add a second layer of supply.

💡 The big ideas

The ideas to carry away. All 185 ideas by theme →

• Minervini only buys stocks that are in long-term uptrends. — Ch. 1, p. 1
  ↪ The 'wind at my back' phrase is the key marker for the long-term uptrend requirement.
• Minervini does not bottom-fish for beaten-down shares and does not try to fight a strong trend. — Ch. 1, p. 1
  ↪ Both prohibitions (bottom-fishing and trend-fighting) are part of the same rule.
• Trading with the trend is foundational to Minervini's approach, following the saying 'the trend is your friend'. — Ch. 1, p. 1
  ↪ 'The trend is your friend' is the quote that anchors this principle.

• Charts of a stock's price and volume are examined to determine whether the stock is acting normally or giving reason for concern, analogous to how a doctor uses an EKG to chart heart activity. — Ch. 1, p. 1
  ↪ The EKG analogy is about distinguishing normal from abnormal action, not about prediction.
• Price and volume analyses can help determine whether a stock is under accumulation or distribution (being bought or sold in size). — Ch. 1, p. 1
  ↪ Accumulation = being bought in size; distribution = being sold in size.
• The ultimate principle of any auction marketplace is the law of supply and demand. — Ch. 1, p. 1
  ↪ The law of supply and demand is the ultimate principle of ANY auction marketplace.
• The key is not knowing for sure what a stock is going to do next, but knowing what it should do. — Ch. 1, p. 1
  ↪ This is the central philosophy: expected behavior ('should do') over prediction ('will do').
• When you know how something is supposed to perform and it doesn't, the exit decision becomes much clearer and easier. — Ch. 1, p. 1
  ↪ The clarity comes from the deviation from expected performance, which triggers the exit.

• There are four distinct stages that stocks go through: Stage 1 (Neglect phase: consolidation), Stage 2 (Advancing phase: accumulation), Stage 3 (Topping phase: distribution), and Stage 4 (Declining phase: capitulation). — Ch. 2, p. 2
  ↪ Stage 2 is the Advancing phase tied to accumulation; do not confuse accumulation (Stage 2) with distribution (Stage 3).
• Minervini avoids going long a stock in any stage except Stage 2. — Ch. 2, p. 2
  ↪ The rule is specifically about LONG positions; the source does not say the same about shorting.
• Based on studies of the biggest winning stocks going all the way back to the late 1800s, more than 95 percent of those stocks made their huge price gains while in a Stage 2 uptrend.95 percent — Ch. 2, p. 2
  ↪ The 95% figure applies to the biggest winning stocks specifically, not to all stocks; the source period goes back to the late 1800s.

• Paul Tudor Jones's most important rule for trading stocks is that a stock must be above its own 200-day moving average, and that he would 'get out of anything that falls below the 200-day moving average.' — Ch. 3, p. 3
  ↪ The rule has both an entry component (above the 200-day MA) and an exit component (get out below it).
• The Trend Template outlines the criteria Minervini applies to every stock he is considering, and serves as his qualifier, which he refers to as 'non-negotiable criteria.' — Ch. 3, p. 3
• The first criteria of the Trend Template include the price being above the 200-day moving average and having the 200-day moving average in an uptrend. — Ch. 3, p. 3
  ↪ Both conditions matter: price above the 200-day AND the 200-day itself pointing up.
• Before you invest, Minervini demands that your stock be in a healthy long-term uptrend. — Ch. 3, p. 3
  ↪ The requirement is a healthy long-term uptrend — not merely the absence of a downtrend.
• The Trend Template consists of exactly eight criteria a stock must meet to be considered in a confirmed Stage 2 uptrend. — Ch. 3, p. 3
  ↪ The 'eight criteria' count is the total number of criteria in the Trend Template.

• A stock must meet all eight Trend Template criteria to be deemed in a confirmed Stage 2 uptrend. — Ch. 4, p. 4
  ↪ The criteria gate a confirmed Stage 2 uptrend specifically, not Stage 1 or any other stage.
• Criterion 1: The stock price must be above both the 150-day (30-week) and the 200-day (40-week) moving average price lines. — Ch. 4, p. 4
  ↪ The 150-day MA equals the 30-week MA, and the 200-day MA equals the 40-week MA—these are the same averages expressed differently.
• Criterion 2: The 150-day moving average must be above the 200-day moving average. — Ch. 4, p. 4
  ↪ The 150-day must be above the 200-day, not merely converging or below it.
• Criterion 3: The 200-day moving average line must be trending up for at least 1 month (preferably 4 to 5 months or longer).1 months — Ch. 4, p. 4
  ↪ The minimum is 1 month; 4 to 5 months is the preference, not the requirement.
• Criterion 4: The 50-day (10-week) moving average must be above both the 150-day and the 200-day moving averages. — Ch. 4, p. 4
  ↪ The 50-day MA equals the 10-week MA; it must sit above both longer averages.
• Criterion 5: The current stock price must be at least 25 percent above its 52-week low.25 percent — Ch. 4, p. 4
  ↪ The threshold is 25 percent above the 52-week low as a minimum, not '% off low' in raw price terms.
• Criterion 6: The current stock price must be within at least 25 percent of its 52-week high (the closer to a new high the better).25 percent — Ch. 4, p. 4
  ↪ Criterion 5 requires price to be 25% ABOVE the low; criterion 6 requires price to be within 25% BELOW the high. The two 25% thresholds are easily confused.
• Criterion 7: The relative strength (RS) ranking, as reported in Investor's Business Daily, must be no less than 70, but preferably in the 90s.70 RS ranking — Ch. 4, p. 4
  ↪ 'No less than 70' is the hard minimum; the 90s is a preference, not a requirement.
• The RS line should not be in a strong downtrend, and the author prefers to see the RS line in an uptrend for at least 6 weeks, preferably 13 weeks or more.6 weeks — Ch. 4, p. 4
  ↪ The RS-line guidance is a note within criterion 7, not a separate numbered criterion; 6 weeks is the preference, 13 weeks is even better.
• Criterion 8: The current price must be trading above the 50-day moving average as the stock is coming out of a base. — Ch. 4, p. 4
  ↪ Criterion 8 tests price versus the 50-day MA; criterion 4 tests the 50-day MA versus the longer averages.

• When a stock falls precipitously and drastically underperforms the market, it is usually a warning — not a bargain. — Ch. 5, p. 5
  ↪ The warning applies specifically to a precipitous and drastic fall, not any modest decline.
• By keeping away from Valeant stock when it was trading below its 200-day moving average, you would have avoided a more than 90 percent decline in value.90 percent — Ch. 5, p. 5
  ↪ The 'more than 90 percent' and '92 percent' are two distinct figures — 92 percent is the specific measurement from the September 2015 closing print below the moving average.
• From the week in September 2015 when VRX closed below its 200-day moving line, Valeant shares fell 92 percent.92 percent — Ch. 5, p. 5
  ↪ This is the precise figure (92 percent); the 'more than 90 percent' in the preceding sentence is the general statement. Do not mix them.
• Sticking with stocks in Stage 2 uptrends will make you much more likely to find an exceptional winner and avoid a bomb like Valeant. — Ch. 5, p. 5
  ↪ The phrasing is 'much more likely' — a probabilistic claim, not a guarantee.

• A 'serial gapper' is a stock in a long-term downtrend that moves steadily downward and experiences a large number of gaps lower along the way. — Ch. 6, p. 7
  ↪ The gaps are downward gaps; a stock gapping repeatedly higher is not a serial gapper.
• Buying a stock in a downtrend dramatically increases your overnight risk and the chance that you will wake up to find your stock down big on a gap. — Ch. 6, p. 7
  ↪ The risk is overnight — you can't react to overnight news before the gap opens.
• When stocks show signs of topping and transition into a Stage 4 decline, downside gaps can become the norm. — Ch. 6, p. 7
  ↪ Stage 4 is the decline stage; topping precedes it.
• Once KORS traded below the 200-day line and entered Stage 4, it became a classic 'serial gapper', with its share price falling from above $85 to below $35.85 USD — Ch. 6, p. 7
  ↪ The trigger was trading below the 200-day line and entering Stage 4.
• If your goal is to own the next superperformance stock, a long-term uptrend is your first threshold or qualifier because you are looking to buy stocks that already have some upward momentum. — Ch. 6, p. 7
  ↪ This is a threshold/qualifier, not the full entry signal — timing precision comes after this filter.
• The uptrend test gives you evidence that the large institutions — the players who can really propel a stock higher — are active in the stock. — Ch. 6, p. 7
  ↪ The uptrend is evidence of institutional presence, not a guarantee of future performance.
• To achieve large returns, your timing must become precise; that precision starts with a stock moving in your direction so that you can pinpoint a high-probability entry point when the uptrend is likely to be the strongest. — Ch. 6, p. 7
  ↪ Direction first, then precise entry — they are sequential requirements, not alternatives.

• The volatility contraction pattern (VCP) is a digestion period or consolidation of previous gains made during an uptrend. — Ch. 8, p. 8
• The most common characteristic shared by constructive price structures (stocks under accumulation) is a contraction of volatility accompanied by specific areas in the base where volume recedes noticeably. — Ch. 8, p. 8
• In virtually all the chart patterns the author relies on, volatility should contract from left to right—moving from greater volatility on the left side of the price base to lesser volatility on the right side. — Ch. 8, p. 8
  ↪ Note the phrase 'virtually all'—it is not literally every pattern in existence.
• During a VCP, you will generally see a sequence of anywhere from two to six price contractions.6 contractions — Ch. 8, p. 8
  ↪ Distinguish: 'two to six' generally in a VCP vs 'typically two to four'—the typical range is narrower than the general range.
• This progressive reduction in price volatility, which is always accompanied by a reduction in volume at specific points, signifies that the base has been completed. — Ch. 8, p. 8
  ↪ The word 'always' is used about the volume reduction accompanying the volatility reduction at specific points.
• As a rule of thumb, each successive contraction is generally contained to about half (plus or minus a reasonable amount) of the previous pullback or contraction. — Ch. 8, p. 8
  ↪ The 'plus or minus a reasonable amount' is part of the rule itself—exact halves are not required.
• Typically, most VCP setups will be formed by two to four contractions, although sometimes there can be as many as five or six.4 contractions — Ch. 8, p. 8
  ↪ The general VCP range is two to six, but the typical range is narrower: two to four.
• The author refers to each of these contractions as a "T." — Ch. 8, p. 8

• With each contraction in a VCP, the price of the stock gets 'tighter' — meaning it corrects less and less from left to right on successively lower volume as the supply diminishes. — Ch. 9, p. 9
  ↪ The 'tighter' price action must be paired with diminishing volume — price tightness without volume contraction does not complete the VCP picture.
• As a stock goes through several contractions, it becomes lighter and can move in one direction much more easily than when it was weighed down with lots of supply, analogous to a wet towel being wrung dry. — Ch. 9, p. 9
  ↪ The towel analogy: each wring removes more water but less and less each time — the stock analog is each contraction removes more supply but in decreasing measure.
• Bitauto Holdings Ltd (BITA) emerged from a well-defined VCP pattern in September 2010 with a consolidation period lasting eight weeks, correcting 28 percent, then 16 percent, and finally just 6 percent on the far right.28 percent — Ch. 9, p. 9
  ↪ The eight-week duration and the declining sequence 28 → 16 → 6 percent are the testable figures — do not confuse weeks with months.
• The reason a stock advances fast with little resistance after a VCP is that supply has stopped coming to market; with little supply available, even a small amount of demand can move the stock up. — Ch. 9, p. 9
  ↪ The causal chain is supply scarcity → small demand suffices to move the stock — the opposite (big demand is needed) is the trap.
• A price consolidation represents a period of equilibrium; as strong investors replace weak traders, supply is absorbed. — Ch. 9, p. 9
  ↪ Equilibrium + strong replacing weak + supply absorption are the three markers of consolidation as defined here.
• Tightness in price from absolute highs to lows and tight closes with little change in price from one day to the next and from one week to the next are generally constructive. — Ch. 9, p. 9
  ↪ Three components: tightness in range (highs to lows), tight daily closes, and tight weekly closes — all must hold.
• These tight areas should be accompanied by a significant decrease in trading volume. — Ch. 9, p. 9
  ↪ Price tightness without volume contraction is incomplete — both are required for a constructive setup.
• In some instances, volume dries up at or near the lowest levels established since the beginning of the stock's advance — a very positive development, especially if it takes place after a period of correction and consolidation, and a telltale sign that the amount of stock coming to market has diminished. — Ch. 9, p. 9
  ↪ The reference level is the lowest since the advance began, and the positive read is strongest after correction and consolidation follows.
• A stock that is under accumulation will almost always show price tightness with contracting volume. — Ch. 9, p. 9
  ↪ The qualifier is 'almost always' — the author leaves room for exceptions; note 'contacting' is the printed word used for 'contracting.'
• The characteristics of price tightness with contracting volume are what a trader should see before initiating a purchase on the right side of the base, which forms what is called the pivot buy point. — Ch. 9, p. 9
  ↪ 'Right side of the base' is the operative location for the pivot buy point — left side or anywhere else is wrong.

• The technical footprint is the unique signature or silhouette each stock makes during its consolidation period, similar to a fingerprint — patterns look alike from afar, but no two are identical when examined closely. — Ch. 10, p. 10
  ↪ The footprint is a consolidation-period signature, not the consolidation pattern itself.
• The immediate distinguishing features of the VCP are: (1) the number of contractions formed throughout the base, (2) their relative depths, and (3) the level of trading volume associated with specific points within the structure. — Ch. 10, p. 10
  ↪ Distinguish the VCP's structural features (contractions, depths, volume) from the quick-reference three components (time, price, symmetry).
• The stock's footprint quick reference is made up of three components: (1) Time — the number of days or weeks that have passed since the base started; (2) Price — the depth of the largest correction and narrowness of the smallest contraction at the very right of the price base; (3) Symmetry — the number of contractions throughout the entire basing process. — Ch. 10, p. 10
  ↪ Time = days/weeks since base started; Price = largest correction depth + smallest contraction narrowness at the right edge; Symmetry = contraction count throughout the base.

• Netflix (NFLX) gained 525 percent in 21 months from its VCP footprint consolidation in 2009.525 percent — p. 11, 12
  ↪ Distinguish the 525% VCP-period gain from the 3,400% since-IPO gain.
• Netflix contracted three times (a 3T) before it emerged out of its 27-week (27W) consolidation.27 weeks — p. 11
  ↪ Netflix = 3T/27W; VIVO = 4T/40W. Do not mix the two pairs.
• In October 2009, Minervini was buying Netflix shares aggressively even though it was trading at 32x earnings while Blockbuster traded at just 2x earnings.32 x earnings — p. 11
  ↪ The 'expensive' stock (Netflix, 32x) was the winner; the 'cheap' stock (Blockbuster, 2x) was the loser.
• From the time it went public, Netflix soared more than 3,400 percent.3400 percent — p. 11
  ↪ 3,400%+ is since IPO; 525% is the VCP move in 21 months.
• During the same period Netflix soared since its IPO, Blockbuster's stock price lost 99 percent of its value.99 percent — p. 11

• Meridian Bioscience (VIVO) contracted four times (4T) before it emerged out of its 40-week (40W) consolidation and advanced more than 100 percent over the next 15 months.40 weeks — p. 11
  ↪ Netflix = 3T/27W; VIVO = 4T/40W. Do not mix the two pairs.
• The final pullback in Meridian Bioscience's base was a short and narrow pullback of just 3 percent over two weeks on very low volume, which formed the pivot buy point.3 percent — p. 12
• In January 2007, Minervini bought Meridian Bioscience as it cracked above the pivot buy point at $17 a share on a noticeable increase in volume.17 USD — p. 12
• After cracking the pivot buy point, Meridian Bioscience advanced 118 percent over the next 15 months.118 percent — p. 12
  ↪ The 'more than 100 percent' in the earlier passage is a lead-in; the exact figure after the pivot breakout is 118 percent.

• Overhead supply in a stock is created by trapped buyers who bought higher and are now sitting with a loss, hoping for a rally to sell at breakeven. — p. 13, 14
  ↪ Overhead supply is about trapped buyers at a loss wanting breakeven, not about profit-takers.
• If the stock is being accumulated by institutions, the price contractions on the right side of the base will get smaller from left to right as available supply is absorbed by the bigger players' demand. — p. 13, 14
  ↪ The shrinking-contractions pattern is on the RIGHT side of the base and only holds when institutions are accumulating.
• If the stock's price and volume do not quiet down on the right side of the consolidation, supply most likely is still coming to market, making the trade too risky and prone to failure. — p. 13, 14
  ↪ Quiet is a REQUIREMENT for buying; the absence of quiet means risk, not opportunity.
• Supply has stopped coming to market when there is a significant contraction in trading volume and significantly quieter price action on the right side of the base. — p. 13, 14
  ↪ Volume contraction AND quieter price action together signal that supply has stopped; one alone is not enough.
• Before buying, a trader should wait until the stock goes through a normal process of shares changing hands from weak holders to stronger ones. — p. 13, 14
  ↪ The waiting is for a NORMAL hand-off process from weak to strong hands, not any price movement.
• As a trader using a stop-loss, you are a weak holder, and the key is to be the last weak holder—wanting as many weak hands as possible to exit the stock before you buy. — p. 13, 14
  ↪ The paradox: a disciplined stop-loss trader is still classified as a weak holder by the source.

• The VCP is evidence of the laws of supply and demand at work as the stock goes through an orderly process of changing from weak hands to strong hands. — Ch. 15, p. 15
  ↪ The direction matters — weak hands to strong hands, not the reverse.
• During the volatility contraction, increasingly less supply comes to market. — Ch. 15, p. 15
  ↪ It is supply that lessens, during the contraction phase.
• As willing long-term buyers meet eager short-term sellers, the overhead supply that has been holding the stock back dissipates. — Ch. 15, p. 15
  ↪ The distinction is long-term buyers vs. short-term sellers.
• The VCP occurs within the confines of an uptrend. — Ch. 15, p. 15
  ↪ Uptrend only — this is a continuation pattern in a larger upward move.
• The VCP happens at higher levels, after the stock has already moved up 30, 40, 50 percent or even much more, because the VCP is a continuation pattern as part of a much larger upward move. — Ch. 15, p. 15
  ↪ The prior advance is substantial — 30, 40, 50% or more.
• The VCP is a continuation pattern as part of a much larger upward move. — Ch. 15, p. 15
  ↪ Continuation, not reversal.
• A stock that is under accumulation will almost always show VCP characteristics. — Ch. 15, p. 15
  ↪ 'Almost always' — a near-universal but not absolute statement.
• The right side of the base forms what is called the pivot buy point. — Ch. 15, p. 15
  ↪ Right side of the base — a common mis-memory is the left side or the top.
• The point at which you want to buy is when the stock moves above the pivot point on expanding volume. — Ch. 15, p. 15
  ↪ Two conditions together: above pivot point AND expanding volume.

• A pivot point is a "call-to-action" price level, often referred to as the optimal buy point. — p. 15
  ↪ The pivot point is a buy trigger, not a price target or support level.
• After a base pattern has been formed, the pivot point is where the stock establishes a price level that acts as the trigger to enter the trade. — p. 15
  ↪ The pivot is the ENTRY trigger after the base is complete.
• A trader should buy as close to the pivot point as possible without chasing the stock up more than a few percentage points. — p. 15
  ↪ The pivot is a near entry, not a confirmation-buy far above it.
• When a pivot aligns with the line of least resistance, a stock can move very fast once it crosses this threshold. — p. 15
  ↪ Alignment with the line of least resistance is the condition for velocity.
• The pivot point is where supply is low, so even a small amount of demand can move the stock higher. — p. 15
  ↪ Low supply = small demand moves price; the mechanism, not just the observation.
• After charging through the pivot point, Mercadolibre's stock price shot up 75 percent in just 13 days.75 percent — p. 15
  ↪ 75% in 13 days — both figures matter for the MELI example.

• Every correct pivot point develops with a contraction in volume, often to a level well below average. — Ch. 16, p. 17
  ↪ The contraction is a feature of the pivot's development, not the breakout day.
• In every correct pivot base there will be at least one day when volume contracts very significantly, in many cases to almost nothing or near the lowest volume level in the entire base structure. — Ch. 16, p. 17
  ↪ The 'in many cases' qualifier means near-zero volume is typical but not guaranteed in every case.
• Volume on the final contraction should be below the 50-day average, with one or two days when volume is extremely low.50-day average None — Ch. 16, p. 17
  ↪ The 50-day average benchmark applies specifically to the final contraction.
• When very little supply is available, even a small amount of buying can move the price up very rapidly. — Ch. 16, p. 17
  ↪ This is the reason volume contraction matters: scarcity of supply makes price moves explosive.
• Volume should contract significantly during the tightest section of the consolidation (the pivot point), which is why the pivot should show contracting volume. — Ch. 16, p. 17
  ↪ The pivot point is the tightest section of the consolidation, paired with the strongest volume contraction.

The short version · All 185 ideas by theme → · every idea carries the book page it came from. · schema v1 · v0.2.0-29-gcd47197-dirty