SEPA Strategy Analysis — Using Minervini’s Method to Identify Buy Points in Growth Stocks

Skill Overview

The SEPA strategy skill conducts a complete, step-by-step health check of a stock using Mark Minervini’s Specific Entry Point Analysis method: first determining which of the four stages the stock is in, then checking each of the eight trend-template conditions, followed by evaluating fundamental performance, identifying the consolidation pattern, locating the pivot-point buy zone, and finally calculating the appropriate position size and stop-loss level.

Use Cases

1. Determining whether a growth stock can be bought now
   You have a stock that has been trending upward and want to know whether it is still in a Stage 2 uptrend, whether a buy point has appeared, and whether entering now would be too late. The skill provides the result of each of the eight trend-template conditions and a clear conclusion.

2. Sharing a stock chart for pattern recognition
   When you want to confirm whether the current pattern is a VCP (Volatility Contraction Pattern), cup-with-handle, flat base, or high-tight flag, the skill analyzes whether each pullback is progressively shallower, whether volume contracts in tandem, where the pivot point—the high of the consolidation range—is located, and how much volume is required to confirm a breakout.

3. Calculating risk before taking action: position sizing and stop-loss planning
   Before pressing the buy button, the skill calculates the exact number of shares using the formula: “account size × risk percentage per trade ÷ (entry price − stop-loss price).” It also provides a three-stage stop-loss execution plan—initial stop-loss → breakeven → trailing along the 20-day moving average—and checks the risk-reward ratio.

Core Functions

1. Four-stage analysis and base counting
   Determines whether the stock is in Stage 1, the basing stage; Stage 2, the buyable uptrend; Stage 3, the topping stage; or Stage 4, the declining stage. If the stock is not in Stage 2, the analysis stops immediately—this is one of the strictest rules in Minervini’s system. Within Stage 2, it also counts which base the stock is forming: the first and second bases are generally the safest and may justify full position sizing; the fifth and sixth bases warrant only half-sized positions; and the seventh or later base usually suggests that the stock is transitioning into Stage 3.

2. Checking each of the eight trend-template conditions
   Provides a checklist showing whether each condition passes or fails, together with the actual values: whether the price is above the 150-day and 200-day moving averages; whether the 150-day moving average is above the 200-day moving average; whether the 200-day moving average has been rising for at least one month, ideally four to five months; whether the 50-day moving average is above both the 150-day and 200-day moving averages; whether the price is above the 50-day moving average; whether the price is at least 30% above its 52-week low; whether it is within 25% of its 52-week high; and whether relative strength is at or above the 70th percentile, preferably 85–90 or higher. All eight conditions must be satisfied simultaneously. Failure of any one condition means the stock does not qualify.

3. Fundamental rating and breakout-quality verification
   Assigns an A/B/C/D rating based on quarterly EPS growth (at least 20% is passing, while 25–50%+ is preferable), whether EPS growth is accelerating, three consecutive years of annual EPS growth, revenue growth, gross-margin and net-margin trends, changes in institutional ownership, and catalysts. During the entry process, it also distinguishes genuine breakouts from false breakouts by checking whether breakout volume reaches at least 1.5 times the 20-day average volume, whether the close is near the day’s high, whether there is follow-through the next day, and whether a volume dry-up (VDU) occurred before the breakout. The buy zone is limited to the range from the pivot point to 5% above the pivot point; anything beyond that is considered chasing.

Frequently Asked Questions

What is SEPA, and how is it related to Mark Minervini?

SEPA stands for Specific Entry Point Analysis. It was developed by American growth-stock trader Mark Minervini and is a complete trading system based on “choosing the right stock, being in the right stage, entering at the right buy point, and applying strict risk management.” Its core principle is not to predict whether prices will rise or fall, but to filter out unqualified stocks using the trend template, enter only during a Stage 2 uptrend through a pivot-point breakout, and use stop-losses to limit each loss to within 7–8%.

What are the eight conditions in the trend template?

They can be remembered as three groups. The first group is the “moving-average staircase” (Conditions 1–5): Price > 50-day moving average > 150-day moving average > 200-day moving average, with the 200-day moving average trending upward to form a bullish alignment. The second group is “price position” (Conditions 6–7): the price must be at least 30% above its 52-week low while remaining within 25% of its 52-week high—far enough from the bottom but close to new highs. The third group is “relative strength” (Condition 8): relative strength must be at or above the 70th percentile, preferably 85–90 or higher, indicating that the stock is a market leader rather than a follower.

How many volatility contractions are needed for a VCP pattern to be considered valid?

At least three; four to five are ideal. The criteria are that the depth of each pullback progressively contracts—for example, 20% → 12% → 6% → 3%—volume declines with each contraction, each pullback’s low is higher than the previous one, and the final contraction shows a volume dry-up. In addition, the stock itself must be in Stage 2, have relative strength above 70, and be in a bullish or neutral overall market environment. The high of the consolidation range is the pivot point, which serves as the trigger price for a breakout entry.

How many shares should be purchased, and where should the stop-loss be set?

The skill uses the following fixed formula:

Number of shares = (account value × risk percentage per trade) ÷ (entry price − stop-loss price)

For example, with a $100,000 account, 1% risk per trade, a $50 entry price, and a $46.50 stop-loss, the maximum loss is $1,000 and the stop-loss distance is $3.50, resulting in 285 shares. The initial stop-loss is set 7–8% below the entry price; this is a non-negotiable hard stop. When the position reaches +8%, sell half and move the stop-loss to breakeven, ensuring that the trade can no longer result in a loss. At +15%, sell another 25%, and trail the remaining position using the 20-day moving average. Stop-losses may only be moved upward, never downward, and losing positions should never be averaged down.

The stock has already risen beyond the buy zone. Can I still chase it?

Not recommended. The buy zone extends from the pivot point to 5% above the pivot point. Beyond that range, chasing the stock increases the stop-loss distance, causing the risk-reward ratio to fall below the minimum requirement of 2:1. It is better to wait for the next consolidation pattern to complete before entering.

What is the win rate of the SEPA method?

Approximately 50–55%. Profit does not come from a high win rate or from predicting market direction, but from an asymmetric risk-reward ratio: each loss is limited to 7–8%, while successful trades can be held for gains of 20–25% or more, allowing a small number of large winners to offset multiple small losses. Therefore, strict adherence to stop-losses is more important than stock selection itself. After three or four consecutive stop-outs, risk per trade should be reduced to 0.5%.

Can this skill provide direct investment advice?

No. Its output is a structured analysis based on publicly available data—including stage classification, condition checks, pattern measurements, and position calculations—and is intended for educational and research purposes. It does not constitute investment advice and should not be used as the sole basis for making trades. When data is missing—for example, when a relative-strength rating is unavailable—the skill will clearly identify the gap rather than make a guess, because missing RS data can materially affect the reliability of the conclusion.

Does the overall market environment affect the analysis?

Yes, and it affects it significantly. The market environment is the primary position-sizing switch: when the indexes are above their 200-day moving averages, market breadth is expanding, and new highs outnumber new lows, conditions are considered bullish; risk per trade may be 1–2%, with a maximum of six to eight holdings. When the indexes are moving sideways and breakouts frequently fail, conditions are considered choppy; risk should be reduced to 0.5–1%, with no more than two or three holdings. When the indexes fall below their 200-day moving averages and more than half of all stocks are below their 200-day moving averages, conditions are considered bearish; no new positions should be opened, and all capital should be held in cash. Even the best pattern can fail in a bear market.

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The output of this skill is provided for educational and research purposes only and does not constitute investment advice. Do not execute trades based solely on the analysis.