Quote from Spydertrader:
Good to see you having success with The Hershey Methods. Feel free to share your techniques, so others may learn from your success.
- Spydertrader
Sure no problem. I have a mentality of ânever being able to leave well enough aloneâ, so based on the knowledge I've gained thus far from this incredible journal and reading through everything I could find on Hershey material elsewhere throughout the net (thanks for all the links), I've made a few changes in an effort to increase the frequency of trades and number of stocks in the final universe.
All the criteria I use for picking stocks are the same (float, eps, five 20% waves), but first I reduced the volume constraint to 150k using 3mo avg vol instead of 65day avg vol, (itâs just easier to swipe off yahoo finance). More importantly though, instead of using the 7/1/0's list, I just cull all the stocks meeting these criteria from the stocktables download list. I know Jack called this a "killer sort" and not to mess with it, but given my understanding of the scoring concept, this sort only made sense to me if you're using only these stocks each day to trade from. Given your success with building a "final universe" of ranked stocks, I decided to just focus on that. Also, I'm using 80eps/80rs with stocks from $5 to $50 on only Nasdaq stocks. Any stocks meeting the specified criteria go into the final universe. I use extreme caution with the $5-10 stocks; they go into a sublist of the universe.
For entry into a stock I've decided to use previous day volume, not calculated dry-up volume. The DU_Cycle calculation "qualifies" a stock for the daily watchlist, but I use pro-rata calculations of the previous day volume for entry. Although if a stockâs previous day volume is less than the DU20 calculation, I use DU20 instead. I got this idea from your g33m4k zero score alternate entry technique. It made sense to me when you talked about trouble with the "dry-up gap" and previous day volume probably being closer to the spirit of Jack's eyeball technique for DU calculation, so I decided to take it one step further. Have had great success with this method so far.
Another qualification I use for adding stocks to the daily watchlist is to see if a stock's volume is "close" to the DU_cycle calculation (and no higher than the 65day avg vol line). I will throw it onto a secondary watchlist only if the daily chart is setting up damn good, ie: volume contracting relative to past volume, pullback to trendline, good score, low stoch, etc. I use pro-rata previous day volume as the signal for entry on stocks in this list. Made some good trades off this list recently: TRGL long, VDSI long, RATE short, etc. Missed VDSI short and RATE long this morning though (see above post).
Also, for entry Iâve decided to use 50% pro-rata by 10:30am (along with your 30min MACD and stoch idea) as the signal to go long because I've seen 25% fail miserably on volume surges off the open. The 25% signal alerts me to get ready. Sometimes I'll go ahead and take it if things look really good and volume is pacing quickly. For shorts I try to use 25% because you have to get in fast. I might stop shorting stocks though because of how fast they drop, like today's ULBI debacle with the ridiculous pattern day trader rule.
Additionally, on the daily charts I draw trend channels (there was a great link someone provided earlier in the journal about this) and use a 5,3,3 stochastic as well as the g33m4k score and 50day MA for additional confirmation whether to go long/short a stock
During a trade I take half off at 5%, the rest at 10, move stop to BE or better after 1st half. I also try to use as tight a stop as I can, no more than 5%, usually 4, and move it up as aggressively as possible, placing it under swing lows if I can on the 30 min chart. I have a rule to never move a stop back down after trailing it up. Also, I never exit a trade arbitrarily, only the trailing stop or targets get me out. This is a mentality I've brought over from futures trading to keep from psyching myself out of an otherwise good trade. Iâm sure my judgement will improve over time, like your experience with the recent ELOS trade. I had pulled off 5% on Friday, but then Monday I bailed out right after it gapped down in the morning, rather than waiting for it to come back and fill up the gap like you did. Awesome.
Anyhow, hope all this helps provide food for thought for this journal. Everyone, take it with a grain of salt, at this point I'm still just a small fry trader, who can't help but obsess over an already proven method and twist it around to 'make it his own'. I welcome comments, observations, etc.
Spydertrader, thanks for the invaluable contribution of knowledge you've provided in this journal, I look forward to continued reading and learning from your experience and others for some time to come. Good luck and good trading to all.
-Johnc99
