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TitleTrading Secrets of the Inner Circle
TagsVix Volatilidad implícita Opción (Finanzas) Contratos futuros Dia de cambio
File Size6.4 MB
Total Pages97
Document Text Contents
Page 2







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mailto:[email protected]
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56 Trading Secrets of the Inner Circle

that pure day traders and pit traders do not exploit. The following code will appear in

your Tradestation software for Pattern #2.

TradeStation code for Pattern #2:

{Exit is in code. Do not set a TradeStation stop}

if dayofweek(date)=2

and range>highest(range,3)[1]

and close>highest(close,4)[l]

and (low<low[l] or

absvalue (low-low[l])<.4)

then sell ("Sell D3") tomorrow at open tomorrow -.1 stop;

if barssinceentry=2 then exitshort ("X D3") at market;

(Pattern #3 goes short on an entry stop signaled after Tuesday's close.

This pattern makes up Charting page 2 and will be tracked by itself.)

Daily Pattern #3: 'Buy on the Cannons and Sell on the Trumpets'
When Tuesday turns into a "Countertrend Tuesday" reversal day, often we would have

been able to buy into the frightening collapse on Monday guided by our other patterns.

To heed the commandment of the Marquis de Rothschilde, we must look to sell into the

fanfare (the metaphoric trumpets) of a confirmed reversal day. When Tuesday reverses

on a large range day and makes the highest closing price in four days, we will sell Wednes-

day on a move down from Wednesday's open for a trade. We hold this short position

until the open on Monday for maximum gains. With an average winning trade of $1850

we have good reason to agree with the Marquis.

The following code will appear in your Tradestation software for Pattern #3.

{Exit is in code. Do not set a TradeStation stop}

if dayofweek(date)=2

and range>highest(range,3)[ 1 ]

and close>highest(close,4)[ 1 ]

and (low<low[l] or

absvalue (low-low[l])<.4)

then sell ("Sell D3") tomorrow at open tomorrow -. 1 stop;

if barssinceentry=2 then exitshort ("X D3") at market;

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Reactive Day Trading of the S&P 500 57

(Pattern #4-14 trade intraday and then exit at the close of the entry day. These

patterns must be tracked separately from the others and will make up Charting page


Daily Pattern #4: Reaction Day Breakout
This pattern excels at doing mechanically what many chart players try unsuccessfully to

do. The code will buy at the onset of a resurgence of a rally after a reaction within this

rally. Very often, using this trade, you will be buying the breakout of a reaction day high

prior to a breakout of recent swing highs. This puts you on the side of stop runners who

acquire positions before taking the market up to the breakout stops higher up. Play with

the pros and go with the reaction day breakout trade. Note the 79% accuracy and 6.00

profit factor of this pattern.

The following code will appear in your Tradestation software for Pattern #4.

{Set TradeStation to close trade at end of day}

if close<lowest(close,3)[ 1 ]

and close<open

and high[l]-high<3

and high[ l]>highest(high,3)[2]

then buy ("Buy D4") tomorrow at high stop;

Daily Pattern #5: Pick Up the Plunger
Ever want to know when to step into a market that has recently experienced a sharp drop

but is now rallying? Look no further. If the high two days ago is less than the low five

days ago, (our drop requirement), and today's high is greater than the previous two

days' highs (our rally requirement) then the first condition is met. We will then buy

tomorrow on a stop at a price we calculate. Take the open tomorrow plus and add our

additive factor of 45 % of the lowest one of the ranges of the past two days. This price is

where you put your buy stop. With 83% accuracy on 40 trades and a profit factor of

nearly 6.15, we have ourselves a killer trade. Don't miss out on the fun and games to the

upside when this pattern goes into action.

Page 96

108 Trading Secrets of the Inner Circle

the analyst is accurate is irrelevant. In the hours or days following the analyst's announcement,

the short-term trading profits have already been made by the large funds.

The second type of profits available to large traders comes in the form of IPO shares. Again,

in return for frequent business, the underwriting syndicates at the major Wall Street houses

give the hottest IPO shares to the best customers more or less. Simply by having significant

assets under management and high turnover, a customer is given shares at prices below the

opening prices of IPO shares on the issue date. All the large trader has to do is sell the IPO

shares at the market at the open ten minutes or so after receiving the shares. This is the closest

thing to a free lunch on Wall Street.

What many of the equity and futures traders overlook is that it is not quantitative screens or

insightful analysis that makes markets move in your direction. It is the knowledge that people

will buy the trading vehicle after you that makes it a worthwhile investment. Perhaps you will

not get the "first call" or any IPO shares, but let me give you a method that will show you how

to get in front of other traders in the stock market.

Method Preamble: The Analyst Opinion Game

To understand why buying stocks that register surprisingly positive earning is a successful

strategy, it is important to understand how Wall Street analysts and salespeople function.

Analysts are assigned to a group of stocks categorized by industries. They provide recom-

mendations and publish their opinions in monthly or quarterly publications. If they change their

opinion about a stock, they pass on their opinion and hopefully bring in business for their firm's

trading departments. If a few weeks after the new recommendation, a client decides to invest

in the sector of the market that the analyst covers, that client will oftentimes solicit the analyst

recommendations before buying. In addition, once an analyst recommends or downgrades a

stock, the brokerage firm's retail arm will start to push the recommendation.

Therefore, changes in analysts' estimates have a longer term effect on flows of capital into

certain stocks that they like or dislike. Many companies provide screens that rank the uni-

verse of stocks on several factors to generate buy lists and sell lists. For most such screens,

the key factor is earnings surprises. Zweig Securities and The Value Line Investment

Survey are two companies that create rankings that incorporate earnings surprise data. These

Page 97

Why the Large Hedge Funds Win and How You Can Too 109

screens have excellent track records in selecting stocks that outperform market averages.

When a stock reports earnings higher than analyst consensus estimates, the Wall Street com-

munity rapidly changes its forecasts.

With this knowledge, we can employ a sophisticated method to get into stocks before the

analysts and mechanical screens reach all traders that use them. Here is my special method for

getting in front of Wall Street.

Our Power Stock Selection Method: The Value Line Outflanking Maneuver:

I subscribe to the Value Line Investment Survey. Each week I receive a summary and index

report that lists stocks that have been upgraded or downgraded on their scale of 1-5 for

timeliness. Stocks that are ranked a 1 have a dramatic history of outperforming the averages

and to some degree the outperformance may be self fulfilling. If you look at the section in the

weekly report called "Noteworthy rank changes," you will see the stocks that have changed in

rank and the reason for the change. In the overwhelming majority of cases it is the stocks that

have reported earnings surprises that get listed.

We are going to try to identify stocks that are about to be upgraded to the ranking of 1 in the

Value Line Investment Survey. What we do to accomplish this is to monitor all the stocks

ranked 2 or 3 in the survey on our quote machine ticker. This news monitoring can be done on

many quote machines by ticker symbol. Anytime a stock ranked 2 or 3 in Value Line Reports

a positive earnings surprise, we will buy it at the market immediately following the announce-


Since the analysts at the major firms did not get their consensus estimates correct in evaluating

the stocks we are buying, it will certainly cause them to either change their estimates upward or

to look more carefully at the reporting company. In addition, since many of the quantitative

screens used by top money managers employ earnings surprise data, we will get the jump on

many portfolio managers using our method. Ideally, the Value Line Investment Survey will

also give a new ranking to the stock, and we will hit a homerun.

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