TraderTalk Workshop: Unlocking Profits By Using TradersWire Interactive, Part 2
The co-creators of TradersWire Interactive Kevin Haggerty and
Larry Connors conducted a live TraderTalk workshop for TradingMarkets
members with Duke Heberlein, editor of TradersWire on Feb. 26, 2002. Here is
Part 2 of our transcription of
their candid discussion of how traders can use
the alerts on the Java Applet and other features of TWI to continually identify
trading opportunities in a focused and methodical fashion. Click
here for Part 1.
Larry Connors: Duke,
are you still with us?
Duke Heberlein: I’m
still here.
Larry Connors: OK.
Duke Heberlein pretty much oversees the TradersWire Insights and Alerts. That’s
the section you see in the upper right hand corner of the TradersWire. The
focus of Duke and his team’s analysis is on high relative strength or trending
stocks that are setting up intraday — basically, stocks that are going to
be breaking out or look like they are going to break out in the direction of
their overall trend. Is that correct?
Duke Heberlein: That
is correct. We’re looking for high momentum stocks both to the upside and
downside, both on an intraday and a swing basis on the daily charts.
Larry Connors: OK.
And the three things you look for are Slim Jims, Triangles and Pullbacks?
Duke Heberlein: For
the most part, yeah.
Larry Connors: Those
are the ones that have the highest percentage.
Duke Heberlein: You
got it.
Larry Connors: OK,
Kevin, Slim Jims are yours. It’s your favorite strategy. Duke, you told me last
week that if you did nothing else you would just trade Slim Jims?
Duke Heberlein: Yes.
Larry Connors: Kevin,
explain to people what a Slim Jim is and why it works.
Kevin Haggerty: Well,
the Slim Jim is certainly not originated by Kevin Haggerty — we just put
my name on it as a memory aid. What it is on a five-minute chart is a very
narrow consolidation — I usually like to use a minimum of seven to eight bars
on the five-minute chart. The Slim Jims that are most effective are those
narrow-range horizontal consolidations. They can also be very narrow
Triangles or Wedges, but they have to be very tight, with more symmetry within
the consolidation — you don’t want the wide up, down, up, down, like an
“M” or a “W.” You want it where the bars are all relatively
the same. I don’t know if anybody did Goldman Sachs
(
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PowerRating) today
(2/26/02) but GS traded about 10 or 12 15-minute bars between 81 1/2 and 82 and
when the program gang came in at 2:40 p.m., it popped right out of there.
I know there were a couple that Duke
had on there which I thought were great — where one comment was (and I
don’t have the names because I didn’t do it and I’m kicking myself):
“Failed at the 200-day moving average, touched and bounced back off the
moving average and was in a Slim Jim at the high of the day.” I mean I
thought that was just a great notification.
When volatility narrows, it’s going to
be resolved one way or the other. This is one of the reasons the Slim Jim is so
powerful — especially from the long side — but both ways. Also, you want
to do Slim Jims very near the highs, very near the lows. You don’t want to
do the ones in the middle — I mean you can do something with them if you have
other reasons to buy or sell stock but the ones with the highest probability are
right at the highs or right at the lows. The ones at the highs, you know, there
might be two or three of them. Obviously
the first one is always the best one and the second one, so you treat it like
that.
The beauty of it is you got tight
stops. You can take it breaking out the top, if it goes back into the range or
below it you know you stop yourself right out. And then, then the ones that are
very, very good are the failures. So it breaks out, then fails and goes the
other way and you might want to take the short. Because what I look at is
if you’re taking a Slim Jim and there’s at least a point and a half or
most of the range either below the stock if you’re going to take a pattern
failure in a Slim Jim at the top where it broke out to the upside, you play
it but you got stopped out, now you’re taking out the bottom. All right. You’re
going short.
You take that trade because that’s a pattern-failure
trade and it can be very good. So the Slim Jim works both ways for you from either
up near the highs or near the lows. If you have a Slim Jim down near the
bottom you can, of course, take it out the bottom. It looks like a
football kicker’s shoe when you look at the good Slim Jims at the bottom. Then,
all of a sudden, you start to see NYSE ticks pick up, you start to see the up
volume and the down volume get better, you start to see a few things green, you
start to see (as Larry mentioned) all of a sudden blue chips being bought,
programs kicking in and all of a sudden the Slim Jim comes out the bottom. Well
sure, you can take that Slim Jim because your risk/reward is good. You’ve got a
tight stop below and also maybe the stock’s down 2 points or 3 points where
you’ve got enough room even on a 50% retracement, Larry, to make a good
move.
So, the Slim Jim — and the other
reason which I don’t think anybody realizes or knows ( I know it because I did
it) is the Slim Jims in the afternoon. When you get this 2:00 p.m.,
2:30 p.m., 3:00 p.m. “Run for the Roses” one way or the other, you’ve
got to understand a couple of things: First of all, program trading is
premeditated. They already know the spread they’re going to do it at, and if
they can beat that spread, they will. So, you know, if they have a certain
spread — meaning they want to sell futures and buy stocks at a certain premium
of the future over the S&P 500 cash index. They are working for an
institution. They know they can only lose so much so if they get a chance
to pick a spot in the marketplace where a breakout would create a lot of buying
or vice versa, selling, what they might do is they might go in and say, for
instance, in a sell program like they did the other day, what they’ll do is
go in and buy puts. Right?
They’ll buy index puts and then
they’ll start hitting the futures. Now they’ve got to risk it. If there’s some
news announcement, they’ve going to have to cover those futures but they already
know they’re stopped by the institution who wants to unwind their position so
they’ll leg in and buy the puts first, then they’ll start selling the
futures It might be a breakdown below an inflection point, you know, out of a
pattern or something. And then that creates the selling, and everybody says,
“Oh, they’re going down! They’re going down!”
Well, that’s exactly what they want.
They cover the stocks down lower. So now they’ve sold futures up top, they’ve
bought stock below at a nice spread — better than they could have gotten right
away — and now they sell out their options that they made a profit on. It’s a
game that’s allowed to go on under the term, “arbitrage,” but that’s
what were seeing in this marketplace, so what happens in Slim Jims is very often
they’ll take these trades out of Slim Jims. It makes sense, right? Because it’s
going to create buying so let’s just talk about the upside.
Now here’s what happens: An
institution, if they’re putting new moneys to work, they’ll come in and get one
of the big brokerage firms and they’ll say, “Look it. Buy X millions of
dollars of futures to try to buy it as close to fair value as possible.”
All right? Because they’re not going to buy the stocks — maybe because the
prices of the stock are not where they’d like them. So they have to put the
money to work. They can’t sit there in cash like that. So they go in and the
brokerage firm buys the futures, buys the futures.
Well, around 2:00 p.m. or 2:30 p.m.,
they haven’t put all the money to work and the market, let’s say, is on the
upside — it’s fairly firm. Well, what they have to do at 2:30 p.m., 3:00 p.m.
is to go in and buy all the stocks, OK, and use the rest of the money and usually
they’ll go in and buy 200 of this, 300 of that and hell, they have to get it
done so you get these explosions later in the afternoon.
Larry Connors: So
Slim Jims later in the day are better than Slim Jims any other part of the
day?
Kevin Haggerty:
Yeah, yeah. And knowing the reason why makes you very confident when you’re
looking at your market dynamics and you get a late-in-the-day Slim Jim. Or it
can work the other way on the downside. Usually what will happen is there will
be the upside when that kind of trade is going on.
Larry Connors:
Interesting. Now Duke, you also cover two other patterns, two pretty common
patterns. One is a triangle, especially an Ascending Triangle. Do you want to
talk about that for a second?
Duke Heberlein: Sure.
We like the Ascending Triangles on the TradersWire because they’re moving
up in the direction of the trend and they make some very powerful moves once
they get on top of that triangle, they get up into new intraday highs.
Larry Connors:
Right. Now today, for example, Whirlpool
(
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PowerRating) before the
opening announced better-than-expected earnings. The stock broke out and then
created an Ascending Triangle. You pointed it out on the Insights but you showed
it right as it was breaking out of its Ascending Triangle when the stock moved
up another point and a half. That’s the type of action you’re looking for.
You’re looking for that intraday Ascending Triangle coming off of new highs or
coming off a very strong stock.
Kevin Haggerty: Hey
you know what Larry, I might jump in on this because Duke and everybody at
TradersWire do a wonderful job at identifying these because the earlier, the
better. If you can get an Ascending Triangle — or a wedge — anything that
looks like where you’ve got rising lows below a flat top, OK. That’s really what
we’re talking about here. And if you get that and it’s also, Duke, as we both
know, the first consolidation breakout to new intraday highs, but it’s coming
from that. It’s an absolutely powerful springboard.
Duke Heberlein: Right.
Larry Connors: Give
that to me again — it’s a first breakout to new highs?
Kevin Haggerty: It’s
a first breakout. Say you have an Ascending Triangle. It might be the
first 15 bars or something in the morning. And you know, it opens up, goes down
and draws a flat top. In other words, it hasn’t gone above the opening of the
early highs. Now you draw a flat line across the top, not like a Slim Jim
because you’ve got that Ascending Triangle down below or a rising wedge, so
you’ve taken the first consolidation breakout to new intraday highs. And any
time you get that first consolidation breakout to new intraday highs, it’s
usually the best move of the day.
Larry Connors: Sure.
Kevin Haggerty: And
if you’re fortunate enough to get that one that gives you that Ascending
Triangle, or that flat base down there, or even an early morning Slimmer, it’s
great, and I think Duke and the guys in the room do a great job at identifying
those.
Larry Connors: Yeah,
and Whirlpool
(
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PowerRating) today certainly was a good example and there are
many, many examples. Duke, there’s another thing you look for: intraday
pullbacks. Really strong trending stocks that then begin going for intraday
pullbacks. You’re alerting subscribers to this throughout the day.
Duke Heberlein: Right.
Again, it just goes to back to we’re looking for momentum, we’re looking for the
trend, and we’re looking for a spot where the subscribers can hop on to that
trend. Going back to what Kevin said earlier, the first one of a good morning
trend is actually the best one, often.
Larry Connors: You
know, another thing that you guys do which is really nice is that you kind of
show what the leaders are doing. You focus on the leaders. I know on Thursday
(2/21/02) you pointed out pretty early on that Micron Technology
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PowerRating) was
breaking under a Triple Bottom. And you kind of nailed it early because it
preceded a pretty healthy sell off in the Nasdaq and the SOX. I mean this thing
just couldn’t hold its lows and once it broke it tended to bring everything
along with it. So you are following what the leaders are doing and looking for
the specific patterns that are occurring and alerting people to it, hopefully
right up to a couple of seconds after they occur.
Duke Heberlein: That’s
exactly right. You know, something like
(
MU |
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PowerRating) is going to affect the
semiconductors which, as we know, is going to affect the tech sector and, at a
minimum, the Nasdaq. So…
Kevin Haggerty: You
know Larry, with Duke on the pullbacks everybody, as Duke knows from the
seminars — you see, he works with me — I’m a Fib guy during the day on
pullbacks. You know, when you have a late night or you get into work late, if
you don’t want to do anything, you just sit back and you bring up the S&P
500, see what stocks are up the most percentage wise, or down the most, and the
NDX 100 also, then you just sit back and you go to your charts.
So once the trend is established, and
it’s above — I call it Net Plus — if it’s above the previous close, OK,
and it’s above the open. Stock runs up, you know, 4 points. Now I’m looking for
that 50% or .618 retracement where the retracement is above the previous close
and above the open — or no lower than it. As Duke said, that first
pullback is where the institutions will come back to add stock because the
stock got away from them and it doesn’t run like that. I don’t mean the opening —
the first five minutes where the retail gets fleeced — I mean, you know,
runs up for the first hour, hour and half. Well, not everybody got their share
of the volume and if they have to reach the stock, it means there are competing
buyers.
So what happens if you get, you know,
a noon sell off or 1:00 p.m. or somewhere in that zone, what happens is
the buyers walk away. They’ve gotten ahead of themselves. They’re afraid they’re
not going to make the VWAP, which for those of you that don’t know what that is,
that’s the Volume Weighted Average Price of the stock based on the volume traded
up until that time frame during the day. So when you get these pullbacks, the
institutions — and I had to do this myself many times to play catch up — the
institutions will come back in and start to buy stock at the lower prices to
make their VWAP look good, and vice versa on the sell side. So that’s a
game that the institutions have to live with and a lot of them get marked like
that as far as their execution ability.
So knowing that — well when people
ask, “Why do you use Fib?” Well, that’s just a simple
quantitative way for me to be very, very alert to see if the institutions
come back in and then you’re looking for reversal bars and, you know, little
patterns, and I think those are the pullbacks I think Duke, that you do put
out a lot, don’t you?
Duke Heberlein: Yes.
Kevin Haggerty: Especially
if it might be in conjunction with let’s say the 20-period or the 15. I don’t
care what moving average you use, but you’ll get a pullback in an uptrend, a Net
Plus pullback and you’ll also have a confluence of maybe a moving average in
there or what have you and you go from there, once you’ve identified. That’s
easy, right? All you’ve done is let the institutions make your trade for you by
saying, OK, I’m up today. I’m Mr. Stock. I’m up. Now you’re just going to see
back and see which ones come back. They’re still Net Plus and you’re going to
say, OK, I want in. And then you’ve got a tight stop just below it. I do that
constantly on the Net Plus stocks and the Net Minus stocks and that’s part
of “Sequence Trading” which I teach at the seminars.
Larry Connors: Right,
right. OK. I want to real briefly here for a minute talk about the chat side of
it and then I want to go over the evening’s “Eight Ways To Take
Advantage of Institutions Using The TradersWire,” that you’ve just
taught, Kevin. Duke, what I see you doing there is basically you’re popping in
and you and Paul and the other analysts are popping in throughout the day and
doing real quick alerts, real quick updates to what’s going on. Not the same
type of in-depth analysis that you’re doing on the Insights but you’re showing
some real quick things. You’re basically a group of peer
advice for people.
Duke Heberlein: Yeah,
and the chat room’s actually great because it allows me — or any of the other
analysts in here — to get in there and put up something very quickly that
otherwise wouldn’t be timely if we typed it into the insights. So that’s a huge
advantage. It means that can get in there really quickly and the members can
take a look at it and see if it’s for them before, you know, it breaks out, or
whatever. So that’s a big help.
Larry Connors: We
also have — and certainly one of the disadvantages of any chat room is
that sometimes you get people in there that may be chatting too much or maybe
giving the type of insights… but on the other side of it is there are a large
group of people who pretty much do know how to play the game and have pointed
out things that normally… it’s like having another set of eyes. There’s also
some money managers and some hedge fund managers that we know in there that are
providing a bigger-picture analysis that normally we wouldn’t be privy to.
Duke Heberlein: Right,
There’s that and there’s also a lot of times I’ll just see a stock that somebody
is talking about and I’ll take a look at the stock and then take a look at the
sector and see, lo and behold, the sector is moving. And that gives me some
other places to look for other analysis that could potentially be profitable for
our members.
Larry Connors:
It’s all good. It’s all good.
All right, we’ve got about four minutes here so let’s review real quickly what
Kevin has taught us here. Kevin, dealing with what you call Roofers. Coming
off the Applet you’re looking for, No. 1: Stocks making 60-day highs that are
trading somewhere near three-year highs.
Kevin Haggerty: Yeah.
Three to five-year highs ideally, if those are available. You know, they are
certainly going to be the high RS, EPS stock.
Larry Connors: And
the institutions are going to run those stocks.
Kevin Haggerty: If
they can. All things being equal, they will, and the money will make the stock
good.
Larry Connors: OK.
Off the Applet at the bottom, you’re looking for No. 2: Stocks that
are bouncing off the 200-day moving average. If you see clusters of 200-day
moving averages and holding, it kind of gives you some good feeling there that
the market is likely to rally.
Kevin Haggerty: That’s
correct.
Larry Connors: You
had two strategies off the pullbacks which are interesting. No. 3: The
10% pullbacks. You’re looking for alerts for stocks having 10% pullbacks and
you’re looking to see if they’re on Mark Boucher’s lists (found elsewhere on the
site). So essentially these are the strongest stocks out there that have pulled
back and you’re looking for some sort of confirmation that not only do
you have the technicals there off the pullbacks, but there are fundamental
reasons why the institutions are likely to come in.
Kevin Haggerty: Correct.
Because you might get 20 candidates and then how often have we all kicked
out, you know, 10 great stocks. We trade three of them and the other seven go
through the roof. They’re “moon shots” and we’re left with the
three where one goes up, two go down, or get no entry, you know. So
what I’ll try to do is… well, people say, “Well, you just trade
technically.” I don’t.
I trade technically but I trade technically where possible and then strongest
stocks that are there above the lines and I think that Mark
Boucher’s lists are very, very useful in addition to my master list that I
get with all those stocks that are above the line. When it comes down to making
that choice, we might be in a pullback mode for three or four days, right,
and a lot of stocks are pulling back. So I think the highest probability is to
gravitate toward those stocks that have demonstrated the prior thrust and
strength. And that’s why I coordinate those lists.
Larry Connors: And
the second pullback you look at — and this is interesting. You’re looking for No.
4: Volume to keep drying up off the pullback but you’re also looking
for volatility to be drying up a little bit because the move coming back off
that pullback with be even stronger to the upside.
Kevin Haggerty: Yeah.
If it’s a good news/bad news pullback, I tend to shy away. What I mean by that
is, you know, a sharp, jagged bar, two down, sharp jagged bar up. I like to see
a pretty symmetrical pullback on lighter volume. It’s just kind of drifting
because the institutions have walked away and they’re digesting the gains and,
you know, waiting for lower prices. So those are the ones I will go to as
opposed to good news/bad news, you know, gap and then down, and then gap.
That’s too choppy
Larry Connors: No
5: Triple 9s to buy, multiple Triple 9s to buy at market extremes, big
market sell off and all of a sudden you see the Triple 9s start popping up on
the Applet, it kind of gives you an idea that the futures are likely to start
running, the market itself is likely to start running.
Kevin Haggerty: Yeah.
First thing I’ll look at is which comes first — I’ll look a lot of times, you
know for the Triple 9s to precede the Ticks. Very rarely do they. Usually NYSE
Ticks will have positive divergence or they’ll start to go — either
simultaneously or a little bit ahead, but when I do see the cash, in
other words, Triple 9s, on the stocks before the futures go, that’s usually
very, very positive.
Larry Connors: No.
6: Stocks turning positive/negative for the first time of the day — you’re
looking for clusters there also. If you see these things all clustered together,
it kind of gives you an idea that the market itself may be turning?
Kevin Haggerty: Absolutely,
and if you’re a momentum trader… I know several hedge funds and I talk to
several very, very good ones, you know, some of the people their style is to
play momentum. They’ll sit there, as the stocks start to go green they’ll
grab a basket of all these high relative strength, above-the-line stocks, just
grab them. At the market. Buy 10 of this, 20 or that, 30 of this, boom,
boom, boom and go, hoping the move carries for a day, two days. So that’s how
the momentum plays out.
Larry Connors: And
then off the Insights, you’re looking for No. 7: First intraday
consolidations. So when Duke puts up there that something is forming an
Ascending Triangle, you’d like to see it ideally off of a new high.
Kevin Haggerty: Any
kind of consolidation that The Dooker puts out there early, usually it’s the
first one when it’s out there by 11:00 a.m. ET, right? Generally, I would say,
Duke, right?
Duke Heberlein: Right.
Kevin Haggerty: I’m
real interested in those. When you start getting into 12 o’clock, 12:30 p.m.,
1:00 p.m., see you later. That’s a tough time frame to trade. So other than when
you have one on, you just move your stops up or you know, down if your short.
But that first intraday consolidation and it could be an Ascending
Triangle, it could be a flat base, it could be Symmetrical Triangle. Whatever
Duke puts out — they’ve used rising wedges… right, Duke?
Duke Heberlein: Right.
Kevin Haggerty:
That’s usually — scour the site for those. So the more they put out
— hey guys I want everybody to send out e-mails and tell them to make sure they
get us with every one of those because that’s a great way to make a living.
Larry Connors: These
are all good — but this is one is especially good because it’s something I have
never heard you say before. No. 8: Slim Jims in the afternoon are
better, especially Slim Jims that are occurring around, what, 2:00 p.m.,
2:30 p.m. in the afternoon?
Kevin Haggerty: Yeah,
yeah, exactly.
Larry Connors: Those
are the ones that when they break out, the institutions are going to be getting
because those are the ones that they have buy orders in that need to be filled
by the end of the day?
Kevin Haggerty: Right.
Larry Connors: So
you are going to be moving with the institutions.
Kevin Haggerty: Exactly.
That’s where you’re watching for the volume with it too. When you see a volume
spurt as they’re coming out, that’s exactly what’s going on.
Larry Connors: OK.
Excellent. We’re going to wrap this up now. Three final things here I want to
say:
1. For those of you who have used the
TradersWire or are part of our membership using the TradersWire, hopefully you
got something out of this and will continue to make money from it. For those of
you who are on the bubble — and I know there are many of you out there, some of
you have sent me e-mails who are on the bubble — hopefully you’ll give it a
try. If you do, you’ll be able to apply this information that we used here
today. For the rest of this week, we’re going to give $100 discount off a year
of TradersWire,
or a 10% discount if you sign up for one month. That $100 is off one year.
2. Also, something that’s been very successful here is that we’ve just opened
private tutorials on how to use the TradersWire. Duke is part of
the private tutorials, Eddie Kwong, our editor in chief, is part of the
tutorials — a few other guys are doing the tutorials. If you want to get a
private tutorial, call into the office, tell them to schedule it for you. The
tutorial is about 15 to 20 minutes long and they’ll show you some exact ways to
use it. Also if you have any e-mails or you need any help with this
thing, just send it to us and we’ll do our best to answer it.
3. And, if you’re on the TradersWire,
Duke is there throughout the day to answer your questions. So we’re
basically here to make sure that you take the TradersWire and that you make
money from it because at the end of the day, that’s what it’s all about.
Gentlemen, Kevin, Duke, thank you very
much. Always good to talk to you.
Kevin Haggerty: This
was fun.
Duke Heberlein: Thanks,
everyone.