How Mark Minervini Finds High-Momentum Stocks

Mark Minervini is a swing trader focused on buying high-momentum stocks emerging out of sound basing patterns. Developing from the CANSLIM style of investing, Mark evolved his style to focus on tight price action with a decrease in volume to capitalize on quick price movements.

Mark Minervini specializes on trading stocks that are in uptrends emerging out of sound basing patterns. So, how does Mark find these uptrending stocks under institutional accumulation.

Minervini emphasizes looking for stocks that demonstrate relative strength compared to the market. He often screens for stocks that are among the strongest performers, typically in the top 2% of the market in terms of price performance.

He examines price and volume patterns, searching for stocks that are consolidating after a strong price advance. The idea is to find stocks that have shown momentum but are not yet widely recognized or are in a “base-building” phase, ready for another move up.

Mark Minervini often looks for specific chart patterns like the “volatility contraction pattern” (VCP), where a stock’s price volatility decreases while it is consolidating. This indicates that the stock might be preparing for a breakout.

He then focuses on buying stocks as they break out of key resistance levels, especially if they are accompanied by high volume. The breakout indicates the start of a new momentum phase.

Why Minervini Focuses on Uptrending Stocks

The key to finding winning stocks is to focus on those already in an uptrend. Mark Minervini believes stocks making new highs are more likely to continue rising. His screens prioritize stocks that show consistent upward movement and are under accumulation by institutional investors.

Minervini believes that stocks in uptrends have a greater likelihood of continuing to move higher. He operates on the principle of “the trend is your friend,” relying on the idea that strength often begets more strength. This approach increases the chances of being on the right side of the trade.

Uptrending stocks typically have the backing of institutional investors. Minervini notes that institutional buying creates a strong tailwind, as these large buyers have the capital to sustain and propel price movements over time. Identifying stocks in an uptrend helps him align with this significant market force.

Stocks that are trending upward tend to have stronger underlying fundamentals and positive market sentiment. By focusing on these, Minervini aims to reduce the risk of holding stocks that are in decline or consolidation, which are more likely to suffer from selling pressure and larger drawdowns.

An uptrend is a form of confirmation that the stock is performing well and is in demand. Minervini prefers to invest in stocks that have already demonstrated their strength through price performance, rather than trying to predict a turnaround in a declining stock.

Minervini’s strategy emphasizes buying the strongest stocks in the market, as measured by relative strength and momentum. Uptrending stocks often exhibit the highest relative strength, showing superior performance compared to the broader market. This allows him to focus on leaders rather than laggards.

In essence, by targeting uptrending stocks, Minervini increases his probability of success, aligning his trades with the path of least resistance.

What Is the Volatility Contraction Pattern (VCP)?

Mark Minervini’s signature trading strategy is the Volatility Contraction Pattern (VCP). The VCP identifies stocks showing tight price ranges and low trading volume near resistance levels, setting the stage for explosive moves when buying pressure returns. The key features of the VCP include the following:

Series of Contractions:

• The VCP is identified by multiple contractions or pullbacks in price. Each contraction is smaller than the previous one, showing that volatility is decreasing over time. This pattern indicates that sellers are being exhausted, and the stock is being accumulated by buyers.

Volume Decrease:

• Volume often decreases during each pullback, reflecting a reduction in selling pressure. The declining volume supports the idea that weak hands are being shaken out, leaving stronger hands (institutional buyers) who are less likely to sell.

Tightening Price Action:

• As the pattern develops, the price action becomes tighter, with lower highs and higher lows forming a narrowing range. This tightening suggests that supply and demand are coming into balance, and the stock is preparing for a significant move.

Breakout Point:

• The VCP culminates in a breakout above a key resistance level. The breakout should be accompanied by a surge in volume, indicating that the stock is emerging from its consolidation phase and entering a new uptrend. This is the ideal entry point for Mark Minervini.

Why Mark Minervini Uses the Volatility Contraction Pattern

The VCP allows Markl Minervini to identify stocks with strong upside potential while limiting downside risk. The tightening of the pattern provides a clear point of entry and a defined stop-loss level.

The decreasing volatility and volume suggest that institutions are accumulating shares, as they tend to buy in a way that minimizes price impact, creating the characteristic contraction. The pattern reflects a period of uncertainty and consolidation, where investors are shaken out before the stock makes a strong move.

By recognizing this pattern, Minervini aims to capitalize on the stock’s move once it breaks out.

Essential Criteria for Screening Stocks

Mark Minervini’s screening process is comprehensive, combining strong fundamentals (earnings and sales growth), technical indicators (relative strength, price patterns), and market context to filter for high-potential stocks. This multi-faceted approach is designed to identify stocks that are not only fundamentally strong but also show clear signs of technical momentum, increasing the probability of a successful trade.

1. Strong Earnings and Sales Growth

• Earnings Growth: A minimum of 20-50% growth in earnings per share (EPS), often preferring stocks with even higher EPS growth rates. Consistent earnings growth is a sign of a healthy, expanding business.
• Sales Growth: Minervini also considers companies with strong sales growth (20% or more). Rising revenues indicate robust demand for the company’s products or services.

2. High Relative Strength (RS)

• Relative Strength Rating: Minervini typically screens for stocks in the top 2% of the market in terms of relative strength. A high RS rating indicates that the stock is outperforming its peers and is likely being accumulated by institutional investors.

3. Positive Price Action and Technical Pattern

• Uptrend Confirmation: Stocks must be in a clear uptrend, demonstrating positive price action.
• Volatility Contraction Pattern (VCP): Minervini looks for stocks that exhibit the VCP, which signals a tightening price range and reduced volatility, suggesting accumulation by strong hands.
• Breakout Potential: He seeks stocks that are near a breakout point, showing the potential for a strong upward move once key resistance levels are breached.

4. Industry Group Strength

• Top-Ranked Industries: Minervini prefers stocks in industries that are in the top quartile of performance. This ensures that he is buying into sectors with strong momentum, which increases the chances of success.

5. Volume Analysis

• Increasing Volume on Breakouts: Minervini looks for stocks that have rising volume on breakout days, as this indicates strong buying interest and institutional accumulation.
• Decreasing Volume on Pullbacks: During consolidations or pullbacks, volume should decrease, suggesting a lack of selling pressure.

6. Favorable Risk-to-Reward Ratio

• Low-Risk Entry Points: Minervini screens for stocks that offer a clear and defined stop-loss level. This allows him to control risk and maximize potential rewards.
• Tight Price Ranges: Stocks that have tight, narrow price ranges are preferred, as they present a lower-risk setup and indicate a possible upcoming breakout.

7. Market Context

• Confirming Market Trend: He aligns his stock selections with the broader market trend, preferring to buy in a confirmed bull market or when major indices are showing strong upward momentum.

Understanding Mark Minervini’s Trend Template

Mark Minervini’s Trend Template is a set of criteria used to identify stocks that are in a strong uptrend and have the highest probability of continuing their upward movement. The Trend Template helps traders quickly screen for stocks that meet Minervini’s technical requirements for strong price action.

Any stock that does not meet this criteria is automatically off his radar.

The most important guideline for trading stocks is that the price must be above the 200-day simple moving average and the 200-day must be in an uptrend. Mark additionally includes other moving average criteria.

By following these guidelines, Mark is fully focused on stocks that are in a confirmed uptrend.

• Stock Price Above the 150-Day Moving Average (MA): The current stock price should be trading above its 150-day moving average. This indicates that the stock has positive momentum and is in a bullish phase.
• 150-Day MA Above the 200-Day MA: The 150-day moving average should be above the 200-day moving average. This shows that the medium-term trend is stronger than the long-term trend, confirming upward momentum.
• 200-Day MA Trending Up for at Least 1 Month: The 200-day moving average should have been trending upward for at least one month. This is a sign that the long-term trend is positive, reducing the likelihood of a reversal.
• Stock Price Above the 50-Day Moving Average: The stock price must also be above the 50-day moving average. This short-term average acts as a key indicator of recent price strength.
• 50-Day MA Above the 150-Day and 200-Day MA: The 50-day moving average should be above both the 150-day and 200-day moving averages. This confirms that the short-term momentum is aligned with the medium- and long-term trends, indicating strong and consistent price strength.
• Relative Strength Rating of 70 or Higher: Minervini screens for stocks with a relative strength (RS) rating of at least 70. This indicates that the stock is outperforming at least 70% of the market and is among the strongest movers.
• Current Price No More Than 25% Below the 52-Week High: The current stock price should not be more than 25% below its 52-week high. This ensures that the stock is close to its recent peak, signaling strong buying interest and potential for a breakout.
• The Stock Is Trending Above Its Recent Base: The stock should be trending above its most recent base or consolidation area, indicating that it has broken out of a previous resistance zone and is continuing its uptrend.

How Mark Minervini Adapts the Trend Template for Different Market Conditions

The Trend Template helps Mark Minervini quickly filter for stocks that meet his strict criteria for momentum and strength, increasing the chances of selecting winning trades. By focusing on stocks that satisfy all these conditions, he ensures that he is investing in leading stocks with a proven track record of strong performance, reducing the risk of picking laggards or stocks in a downtrend.

Mark Minervini adjusts the Trend Template based on the market’s strength. In shorter trends, the 200-day moving average should be higher than it was one month ago. For longer trends, it should be higher than it was five months ago. This flexibility helps him adapt to varying market environments.

This provides a systematic approach to identifying stocks in strong uptrends, reducing the emotional bias in stock selection. In any market environment Minervini increases the likelihood of choosing stocks that are already showing positive momentum and are less likely to reverse.

What Is Mark Minervini’s Power Play?

The Power Play, similar to a High Tight Flag, capitalizes on the velocity of sharp price spikes. This setup often occurs in high-performing growth stocks that have already shown substantial gains but are setting up for a further accelerated move.

The Power Play occurs in stocks that have already demonstrated a strong uptrend, typically with a significant gain of 100% or more over a relatively short period. After a powerful advance, the stock will enter a consolidation phase that is both tight and shallow.

The Power Play pattern is marked by a decrease in volatility, similar to the Volatility Contraction Pattern (VCP). The Power Play culminates in a high-volume breakout above the consolidation area.

The pattern shows a stock that is already a proven leader, has strong institutional support, and is likely to continue its upward trajectory without much downside risk. This setup allows traders to capitalize on stocks that are entering a new phase of accelerated price movement, often leading to substantial gains in a short time.

• A prior strong uptrend with gains of at least 100%.
• A tight consolidation phase with minimal price pullback (less than 10-15%).
• Decreasing volatility and tightening price action during consolidation.
• A breakout from the consolidation area on increased volume.

Using Mark Minervini’s Screener Presets in Deepvue

To make finding stocks easy, Deepvue partnered with Mark Minervini, and other top traders, to bring you the Trend Template and Power Play screeners.

In the Screener module, navigate to the Screener Preset tab and type Minervini. You will see all the available screens Mark Minervini uses to find high-momentum stocks.

Favorite any screen to pin it to the top of your Watchlist module by clicking the Star. Click the three dots to Duplicate any screen into your Saved Screens to make it your own.

Key Takeaways from Mark Minervini’s Trading Strategy

Mark Minirvini specializes in identifying and trading high-momentum stocks that rapidly increase in price. He looks for stocks that undergo a period of consolidation after a substantial price move.

To guarantee success, Mark trades stocks that are in confirmed uptrends. For all his trade setups there must be a Volatility Contraction that shows tightness in price with a decrease in trading volume.

Mark Minervini believes in investing in stocks that are already showing an upward trend, adhering to the principle that “the trend is your friend.” This increases the probability of making profitable trades.

Uptrending stocks often have institutional backing, which provides a significant push due to the large amounts of capital involved. This institutional buying can sustain and even amplify stock price movements.

Stocks in an uptrend typically have strong underlying fundamentals and positive market sentiment. This focus helps in avoiding stocks that might be in decline or consolidation, which could lead to losses.

An uptrend acts as a confirmation of a stock’s performance and demand, making it a safer bet than trying to predict when a downtrending stock will recover.

Minervini’s strategy involves selecting the market’s strongest stocks based on relative strength and momentum, allowing him to invest in leaders rather than laggards.

By targeting stocks with established uptrends, Minervini aligns his investments with the market’s direction, thereby increasing his chances of success through a strategy that moves with the market’s natural flow.