A System Behind a +40% Week — Six Years of Trading Experience Compressed Into One Article

Apr 17, 2026, By @kovainvest

The Complete Process From Stock Selection, Position Building, Adding to Positions, to Selling — Fully Disclosed.

Preface

This is written to myself from six years ago.

Back then my account drew down more than 40% in two months. The problem wasn't a lack of theory — I'd worn out several books by Minervini, O'Neil, and Weinstein. The problem was that what I understood was a pile of scattered concepts, not one complete process from market open to close.

Every entry was based purely on feeling in the moment. I'd stubbornly hold onto losers and bail early on winners. My watchlist was full of names, and every one of them felt "more or less buyable." When the broader market was turning weak, I'd still be adding to positions because "this one's different from the market."

What I did afterward was force everything I'd learned into a checklist that wasn't up for debate. Only after that did my P&L curve start to take shape.

This piece writes down the entire process. Reading it won't make you money tomorrow. But it will stop you from trading on feeling.

I. Stock Selection: Four Dimensions, None Optional

Stock picking isn't mysticism — it's filtering. I break it into four dimensions, and every one of them has to pass.

Fundamentals (the company is actually growing)

Quarterly EPS growth of 25%+ year-over-year, the higher the better. It's even better if growth has been accelerating over the last two quarters. Annual EPS should also show sustained growth. Revenue growth of 20%+ year-over-year. These correspond to the C and A in CAN SLIM — the most basic filter.

If a company's EPS growth decelerates from 30% to 10% over two consecutive quarters, that's already a danger sign, even if the stock price hasn't reacted yet. Fundamentals are a rearview mirror, but the market is a leading indicator.

Technicals (healthy chart)

RS Rating of 80+, ideally 90+. This matters more than anything written in any book. A stock with low RS is dead money no matter how nice the chart looks.

Price above the 50-day moving average. 10-day MA above the 20-day MA. Within 15–20% of the 52-week high. These conditions filter out most stocks in downtrends, leaving only those worth discussing a setup for.

Institutional Sponsorship (big money is buying)

The number of funds holding the stock has been increasing over recent quarters. Better still if well-known long-term funds are entering. Seeing big money like Fidelity, Capital Group, or Janus accumulating in 13F filings matters more than any analyst rating.

Market Environment (the M in CAN SLIM)

The broader market is in a Confirmed Uptrend. No pileup of recent distribution days.

This is a point a lot of people ignore, but 75% of stocks move with the broader market. In a bear market, even a great setup only has about a 30% win rate. In a bull market, even mediocre setups can make money.

A candidate only earns a spot in the pool when all four boxes are checked. Miss one, and you pass — there are plenty of other stocks out there.

• A mistake retail traders commonly make: looking only at fundamentals and ignoring technicals, or vice versa. Good companies with ugly charts exist, and bad companies with flying stock prices exist too — but what we're looking for is the small overlap where both are right.

II. Finding Stocks: Turning Selection Criteria Into a Scanner

Once you know what you're looking for, the next step is finding it.

Here's my weekly screener criteria, fully disclosed:

• Stock price above $10
• Average Daily Range above 4%
• RS Rating above 90
• Price above the 50-day EMA
• 10-day EMA above the 20-day EMA
• More than 70% above the 52-week low

Running this typically leaves 50–80 names. Then I go through three rounds of chart review.

First pass: eliminate anything with an ugly shape, a recent sharp drop, or something that's clearly already completed its move. Leaves about 30.

Second pass: flag stocks with a clean base — cup-with-handle, flat base, or VCP. This pass cuts the list roughly in half.

Third pass: focus on names where the 10 EMA has just crossed above the 20 EMA, or where the base is about to complete its contraction. Leaves 10–15 names for the main watchlist.

I've backtested this process hundreds of times on QuantConnect. The screener's job is to narrow the field of view, not to pick stocks directly. The real work happens after the watchlist is built.

What you do every day after that is simple: check whether these names are giving a setup today. If not, wait and check again tomorrow.

The biggest improvement I made in this business was learning to sit on my hands on days with no setup. What the screener finds are candidates; the setup is the order. The two shouldn't be conflated.

III. Buying: VCP Is the Core, Pocket Pivot Is the Supplement

What Is a VCP

VCP is the Volatility Contraction Pattern that Minervini codified — the typical shape a strong stock takes when it pauses during an uptrend.

Roughly, the process looks like this: the stock rallies first, say 30%+, then starts to pull back. The first pullback is 25–35%, and it consolidates for a while. It launches another small leg up, then the second pullback shrinks to 15–20%. There may be a third, with the pullback narrowing further to 5–10%. Each pullback is shallower and shorter than the last, with declining volume.

Charted out, it looks like an increasingly tight wedge — like a spring being compressed layer by layer.

A True VCP Requires Three Simultaneous Contractions

Many people think VCP just means price contraction. That's only seeing the surface. A genuinely valid VCP has three things happening at once.

Price contraction: each pullback is smaller than the last.

Volume contraction: by the end of the contraction phase, volume is noticeably below the 50-day average. Sometimes you'll see several consecutive days of extremely low volume — what's called an "FU day" (Fucking Ugly day) — this kind of dead-quiet day suggests sellers have been exhausted and nobody wants to sell anymore.

Volatility contraction: intraday range keeps shrinking, with 3–5 consecutive days of closing price changes under 1%, and the candlesticks bunching tightly together.

When all three contractions appear together, it means supply has dried up and all that's needed is a buy signal to ignite the move. This is the highest win-rate entry timing.

Pivot Point: The Trigger Price

Once the contraction phase is ending, the high of the consolidation range becomes the pivot point. In practice, pivot plus 10 cents is usually taken as the actual breakout trigger price.

Two hard conditions for buying: price breaks above the pivot. Volume on breakout day is 40–50%+ above the 50-day average volume.

Both conditions must be met simultaneously for it to count as a real breakout. Price without volume is a false breakout, likely to fail.

The buy zone is from the pivot up to 5% above it. Beyond 5%, don't chase — wait for the next base or a pocket pivot. The cost of chasing is that your stop-loss room gets compressed, which ruins the risk/reward ratio.

Pocket Pivot: An Early Entry Before the Base Has Fully Formed

Sometimes a stock hasn't formed a complete VCP yet, but it's already trading strongly. In that case, the pocket pivot is an earlier entry point.

The definition is simple: on a given up day, volume exceeds the volume of the highest-volume down day among the past 10 trading days.

In plain terms, buying pressure has suddenly overwhelmed all recent selling pressure — a signal that institutions are quietly accumulating.

None of my most profitable trades in my V18 system were entered on the day of the daily-chart breakout. All of them were entered on a pocket pivot or at the tail end of a contraction, zoomed into the 60-minute or 15-minute chart for a precise entry. Buying on breakout day is just catching what was missed — the pocket pivot is the primary entry point.

A Real Example

$RKLB

The main upward wave I caught wasn't entered on the day of the obvious daily-chart breakout. It was during a pocket pivot late in the base contraction. At the time, the daily chart hadn't completed its base yet, but the smaller timeframe had already given a signal — volume overwhelmed all the down days from the previous two weeks. Those who waited for the daily breakout entered about 8% later than I did.

That's the edge once you've mastered VCP. It's not about waiting for the candle everyone else can see — it's about being able to recognize, two to three weeks earlier, that a stock is quietly being accumulated by institutions.

IV. Stop-Loss: Protecting Principal

Anyone who can't cut losses won't survive three years in this market.

7–8% Is the Hard Ceiling

Sell unconditionally if the stock drops 7–8% from your buy price. This is a rule validated by decades of CAN SLIM history.

Why this number? Because a good breakout entry normally shouldn't drag you down more than 7%. If it does, the breakout has failed, and continuing to hold only digs the hole deeper.

The Actual Stop Is Usually Tighter

8% is the maximum ceiling; the real stop is usually set tighter.

Just below the pivot: since you bought near the pivot, breaking below it means the breakout has failed — get out immediately.

2–3% below the entry day's intraday low: a very tight stop for short-term trades.

Below the 21-day EMA: strong stocks typically ride along the 21 EMA, so breaking below it signals the trend may be turning bad.

ATR-based stop: using 2x average true range as the stop distance, adjusted for the stock's own volatility.

In practice, I take whichever of these is tightest, as long as it doesn't exceed 7%.

The Time Stop Most People Don't Know About

If the stock shows no progress 2–3 weeks after entry, just grinding sideways near the buy price, that's a reason to exit.

A good breakout stock should typically show clear progress within a week of entry. Grinding sideways means the breakout lacked force. Even if it's not dropping, it's still burning opportunity cost and patience.

Time is also a form of stop-loss.

Distinguishing a Shakeout From a Real Breakdown

Sometimes a stock breaks below the pivot and then quickly bounces back — that's called a shakeout, and it's a healthy occurrence.

A real breakdown is usually accompanied by heavy volume; a shakeout usually comes on light volume. A real breakdown closes below the pivot; a shakeout may pierce it intraday but rallies back to close above it. A real breakdown keeps drifting lower; a shakeout recovers within 1–2 days.

If you get stopped out and it turns out to have been a shakeout, with the price reclaiming the pivot, allow yourself to buy back in. Don't let ego get in the way — the market doesn't care about your pride.

V. Adding to Positions: Pyramid Style, Only Add to Winners

There's only one principle for adding to a position: add in the direction that's working.

Conversely, never average down into a losing position. This is the number-one killer of retail accounts. You think it's getting cheaper the more it falls; the market is telling you it's getting "more correct" the more it falls — and it's still falling.

Pyramid Structure

My own scaling method:

First tranche, 50%, bought on the day of the pivot breakout.

Second tranche, 30%, added after the price rises 2–3%.

Third tranche, 20%, added after another 2–5% rise, or on the next pocket pivot.

Smaller as you go up. The higher you add, the smaller the size, because the closer you get to a near-term high, the greater the odds of getting knocked back down.

25% Cap Per Position

No single stock should exceed 25% of total capital. No matter how confident you are, you need to leave room for error — the possibility of being wrong never goes away, and it often strikes exactly when you're most confident.

Three Things You Never Add To

Never add to a loser. If you were wrong, you were wrong — adding only doubles the damage.

Never add more than 5% above the pivot. Chasing compresses your stop-loss room, ruining the risk/reward ratio.

Never add when the broader market is weakening. When the environment changes, even scale back on your best stock.

VI. Selling: Protecting Profits

Stop-losses protect your principal; selling protects your profits. These are two different things.

A bad entry costs you at most 7–8%. A bad exit can turn a 100% gain into a 20% gain, or turn a 20% gain into a loss. Selling is the hardest step in trading.

Offensive Selling (What to Do When You're Winning)

The 8-week, 20% rule. If a stock gains 20%+ within 3 weeks of breakout, that's a sign of a powerful launch — hold for at least 8 weeks before considering selling. Historically, many big winners started this way. Conversely, if it takes a sluggish 8 weeks to gain 20%, it's fine to take profits earlier.

Climax runs (a blow-off top near the end of a move). These signals near the end of a long advance usually mean you're near a top:

• The last 2–3 weeks show a gain of 25–30%+
• Multiple consecutive large up-candles, with intraday range suddenly widening
• Gap-up opens with huge volume
• The gain starts to break away above the normal channel of the uptrend

$MU and $SNDK recently were textbook climax runs — a 5-week cumulative gain of +115%, repeated gap-ups, and volume more than 3x the base-period average. That's not a spot to add — it's a spot to trim. I cut 50% at that point and let the rest ride with a trailing stop against the 10 EMA.

Churning (heavy volume, stalled price). Multiple days of large volume with the stock barely moving, or closing near the day's low. Institutions are quietly distributing. This is one of the most common top signals.

Defensive Selling (What to Do When Things Turn Bad)

When the trend breaks, get out.

A break below the 50-day moving average on heavy volume (the 10-week MA on the weekly chart) — one of the most important defensive signals in CAN SLIM.

A break below the uptrend line — the line connecting the past several significant lows; breaking it means the trend may be ending.

A pileup of distribution days — 5+ heavy-volume down days (volume greater than the prior day, closing down 0.2%+) within 4–5 weeks. Institutions are exiting.

Earnings gap-downs. A large gap-down after earnings, especially one that breaks below the 50 EMA, is essentially a verdict. Don't wait around hoping it'll come back for you to buy — execute first.

The Hard Part Is Actually Executing

Everyone finds it hard to let go. What if it goes back up? Let's wait one more day and see. And then you watch your profit shrink into a loss.

My own crude method: the moment a sell signal triggers, place the order on the spot — don't give yourself a chance to second-guess. If it later turns out to have been the wrong call, I accept it. In the long run, those who execute strictly win, and those who make frequent exceptions lose.

VII. Position Sizing and Mindset: What Determines Whether You Survive to the Next Bull Market

Technique and method determine how much you can make. Position sizing and mindset determine whether you survive. This matters more than being able to spot a VCP.

Basic Principles of Position Sizing

Full positions in leaders during a bull market; cash during a bear market.

Judgment criteria: the broader market above the 50 EMA with no major pileup of distribution days counts as a bull market — you can hold up to 4–5 names, none exceeding 25% of capital. Below the 50 EMA with 5+ distribution days within 4 weeks counts as a correction or bear market — reduce total exposure to under 30%, keeping only your 1–2 strongest names.

Don't try to trade fully invested in every market environment. Forcing setups in the wrong environment only loses money.

Number of Concurrent Positions

5 names maximum. Fewer than 3 may mean too much concentration; more than 5 and you can't keep track.

For every position, you should clearly know your stop-loss level, your add-on level, and your profit target. If you can't do that, it means you're holding too many positions.

Handling a Losing Streak

After 3 consecutive stop-outs, cut your position size in half immediately. It may not be a problem with the method — more likely the market environment is shifting, and you're sensing it before you consciously realize it.

After 5 consecutive stop-outs, stop trading for a week — review only, don't trade.

This rule is non-negotiable. Emotional state gets distorted after a losing streak, and it warps every judgment — the harder you try to win it back, the more you lose.

The Single Most Important Mental Habit

Learn to do nothing during the weeks with no signal.

VCP doesn't actually give that many high-quality signals in a given year. Most of the time, your job isn't trading — it's waiting. This is far harder than recognizing chart patterns.

Someone who stares at the screen 24 hours a day, wanting to trade every candle, will never build this kind of system.

VIII. Trading Journal: The Cheapest Teacher

One last thing that's unrelated to technique but critically important: keep a trading journal.

Log every single trade:

• Reason for buying (why this stock — VCP or pocket pivot)
• Market environment at the time of entry
• Where the stop-loss was
• Add-on plan
• How it was finally closed out, profit or loss, and the amount
• Post-trade review — if you did it again, what would you do right, what would you do wrong

Stick with it for six months and you'll be shocked how many mistakes you keep repeating. This is more useful than reading any number of books, because it's your own data.

Going back through my earliest trading journal entries, I can see how basic the mistakes I made back then really were. The frequency of repeating the same mistake a second time has dropped from once a week at the start to once every few months now. That gap is the value of the journal.

Closing Thoughts

None of the rules in this method are complicated. The hard part was never the knowledge.

It took me about a year to bring my account back from a 40% drawdown to new highs. In those 12 months I didn't discover any new technical indicator, and I didn't read any new books. What I did was turn everything written above into a non-negotiable process and execute it every day.

You won't become an expert overnight. Understanding these rules takes an hour. Mastering them takes at least three years.

Most people fail not because they don't understand — they fail because even understanding it, they can't do it.

If you're willing to treat this year as an investment in process, three years from now, looking back, you'll thank yourself for making that decision today.

Onward together.

@kovainvest