From the March 01, 2011 issue of Futures Magazine • Subscribe!

Trade Like an O’Neil Disciple: How We Made 18,000% in the Stock Market

The authors have developed small rules and sub-systems that help enhance their approach based upon using their market experience as an effective feedback system. Some of their successful trading rules that have been tested in practice and statistically are shared with readers. Again, they are not shy about their trading mistakes and readily point them out in their trading review.

After extensive research by Kacher in 2005, the “pocket pivot” was developed to identify an early base breakout indicator in a flat, compressed, sideways market. The extensive 60-page chapter on this indicator includes 57 annotated charting examples, and shows investors how to identify an early entry point to buy leading stocks under accumulation.

To ensure that investors have a full complement of tools, the authors provide guidance on handling bear markets using short-selling techniques. They work their way through six basic short-selling rules providing the philosophical basis on which their O’Neil-based approach is constructed. They provide numerous short-sale set-up chart examples. The authors end this chapter by showing how to short “hot” stocks after their climax run.

One 58-page chapter recounts Morales’ and Kacher’s actual trades 1998 through 2005 while working at O’Neil’s firm. They provide commentary on an abridged version of their combined trading diaries (containing careful notes of their real-time trades) combined with useful annotated charts while at the firm. After a while the number of examples become tedious. They easily could have streamlined that chapter without taking away from their overall focus.

Kacher provides a chapter on his market direction model and the rules that are followed. He developed a model to systematically generate buy or sell signals for the major market indexes. Those rules, he points out, are the market’s, not his or Wall Street’s. They are statistically significant rules based on analyzing more than 20 market cycles on how the leading stocks behaved and how the indicators affected the market. The model focuses on the price/volume activity on the Nasdaq Composite and S&P 500 Index.

One of last few chapters of the book provides Bill O’Neil’s Ten Commandments, which are his key concepts, ideas, rules and principles. This distillation gives readers a snapshot of some of the important tenets of O’Neil’s success.

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