Jack Hershey method - “Tomorrow’s “Tomorrow’s paper today”
Jack Hershey is a trader who posts on discussion discuss ion groups such as misc.invest.technical, misc.invest.stocks, and misc.invest.futures. He has traded since 1957, primarily commodities futures but also stocks. His method is not published but he freely offers advice and guidance to anyone wishing to use his strategy. He is a great advocate of illiam !"#eil"s $%#&'() methodology. methodology. He strongly dismisses the *buy and hold+ mentality stressing that it only makes sense to own a stock while it is going up in price, at its fastest rate. -rade the the trend if there is no trend get out. out. (f you are holding a stock that is falling in price, sell it. His method focuses on the natural cycles of uality stocks. He repeatedly stresses that prediction is futile learn to anticipate. &earching the newsgroups for *Jack Hershey+ results in over /000 posts, many of which are several sides of %. -he only minor drawback is that his writing style freuently borders on the incomprehensible. &ummarising his method will inevitably lose some of the nuances. Trading principles 1. !ptimi2ation of capital appreciation compound interest formula /. 3isk minimi2ation 4 achieved through uality stocks . $omprehensive set of tools that integrate into an operational system. 1. Power of compound interest formula 6 %81:;<=n %81:;<=n where 6 final capital, %initial sum, ; is ; increase per trade, n no of cycles (mportant to realise that rate of growth is dominated by no. of cycles, #!- profit ; >?@ 10; per cycle trade<, 50 cycles in three years, gain is 117 8 starting capital Aocus on strongest portion of trend i.e enter late and leave early and move to ne?t candidate wit h stronger trend higher 3!(<. -his decreases ; profit per trade but increases number of trades. -his is what drives the compound interest formula to get the ma?imum 3eturn !n (nvestment. !. "uality stocks only >arnings 6er &hare and 3elative &trength ranking B90 in top 10;< )in price C10, ma? price C50, min D5 day average volume of 00,000. Aloat no. of outstanding shares< 5 to 0 million. Aocus on stocks that regularly e?hibit D to E day cycles c ycles of /0; price movement 'ook for stocks where volume has dried up. -he cue to trade is then an increase in volume. -rade D to E stocks, one per day, taking the middle 10; of each swing to t o give 10; every D to E days, per stock. #. $olume leads Price Folume Folume is the leading indicator for both buying and selling. Hershey focuses on the 6rice, Folume relationship i.e. the use of volume as a leading indicator to price change.
Folume change precedes price change. (f the Folume trend is increasing, then the 6rice trend will continue. (f the Folume is decreasing then the 6rice trend will change. %lso, if the volume is relatively unchanging, then the 6rice will drift slowly downward Hershey call this oIclock drift.<. (n essence it is saying that if volume is increasing the e?isting price trend will continue. hen volume decreases e?pect the price trend to change. -he vertical arrows in the bo?es represent these conditions. -he hourglass shape in the middle represents the seuence of events for a stock one is trading. &tarting at lower right, when when price is trending down and volume is decreasing, be prepared to buy. -he advance warning to buy comes when volume increases again, with the buying being done as the transition is made from lower right to upper left. -his is very important, you donIt actually buy ust because volume and price are trending down as the diagram appears to suggest. %s long as volume is increasing and price is increasing the trend should continue and you hold. %s volume deceases with price increasing you make the transition from upper left upper right. -he smart seller sells when the price then shows signs of faltering. hen volume picks up again and price falls you make the transition from upper right to lower left for the sell off phase. -hen when volume decreases drys up< you make the transition to lower right and get ready to buy the ne?t up4cycle. (f volume is way below average and price falling we are in stage 1
-he price curve is an elegant mathematical description of the relationship between price, volume and accumulationGdistribution. Ksing Loolean notation@
6rice Mown 0< Mown 0< Mown 0< Mown 0< Kp 1< Kp 1< Kp 1< Kp 1<
Folume Mown 0< Mown 0< Kp 1< Kp 1< Mown 0< Mown 0< Kp 1< Kp 1<
%ccGMist Mistribution 0< %ccumulation 1< Mistribution 0< %ccumulation 1< Mistribution 0< %ccumulation 1< Mistribution 0< %ccumulation 1<
%ll we are really interested in are stages 1, 0 and 7 to go long<. &horting would use the seuence 5, , .
&core 000 0 Mry up< 001 1 Mry up< 010 / 011 100 101 5 110 D 111 7 A3F<
%election of stock uni&erse a. Ksing www.stocktables.com b. -$/000 scans he no longer uses -$/000 since v< 'a( %tockta)les selection &et search to >6& and 3&B90. )in price C10, ma? C50. &ort the list by ; volume change. e are looking to create lists@ 7Is, 0Is and 1Is.
'ist the top 10 stocks with price increase and vol increase 7"s list Arom bottom of list, select 1st 10 stocks with volB/0000 0"s list Mry Kp 1< $ontinue up list, select ne?t 10 stocks with volB/0000 1"s list Mry Kp /< e now have 0 stocks, in lists of 10 -he 7Is are Ntaking offN, the 1Is are NlandingN, and the 0Is are preparing for take off. $andidates only ualify to be listed if@ 1. D5 day moving average e?ceeds 00,000 /. Aloat no. of outstanding shares< is 5 to 0 million. . &tocks should e?hibit cyclic behaviour , D to E day cycles, /0; price range, over the last 5 or D months. . >6& is positive. 5. (nstitutional ownership B/5; 3ecently ( have found that most stocks are ust too thin to trade. ( have however arrived at the following preliminary watch list@ %$M!, %''O, $%$(, $HL&, $!--,$FP, MAQ(, AH3Q, H!--, H6'%, (6($, )>#-, )()&, )!&O, )!F(, #-LR, 6>$&, 3)$(, --(', L&# &ome of these have drifted slightly under the >6& S 3&B90 criteria but ( gather that Jack doesnIt rush to remove them from the list. Aor each stock, look back a few da ys and note levels of volume@ the lowest Mry Kp<, the highest 6eak< and the volume that indicates a breakout Airst 3ising Folume<. Oou may also see some heavy volume increases that don"t have the desired effect. -his is the *failure to breakout+ level. A3F should be to times MK. hen volume in 1 st / hours e?ceeds MK then bracket orders for entry. Hold until pro4rata volume T D5day ma vol. ')( T*!+++ scans progressive stages of dry up@ 1. %FPF0 4 8 %FPF5< B 0< %#M %FPF5 B 0< /. %FPF0 B / 8 %FPF.D %#M %FPF0 B / 8 %FPF< %#M %FPF. 4 %FPF< B 0 . %FPF0 B / 8 %FPFD. %#M %FPF0 B / 8 %FPF< %#M %FPFD. 4 %FPF< B 0 A3F . %FPF5 4 %FPF0< B 1000 %#M )%Q$1/D 4 )(#$1/D< B 0.5 8 )(#$1/D 5. %FPF5 4 %FPF0< B 1000 >?it conditions@ Painers !ver Oesterday Letween 5; and 10; (nc. D. $ 4 $/< G $/< 8 100 B 5 %#M $ 4 $/< G $/< 8 100 T 10 Painers !ver Oesterday Preater than 10; 7. $ 4 $/< G $/< 8 100 B 10 &tage 1 or &tage H0 T 1.1 8 '5< %#M H5 T 1.1 8 '0< &tage / or &tage )%Q$1/D 4 )(#$1/D< G )(#$1/D< 8 100 Pappers ' B H1 !3 H T '1 %#M F B 1000 !3 $ 8 F< B /500
Mry Kp 1 Mry Kp / Mry Kp
Trading techni,ue Kse timescales Hershey calls these fractals<. Kse the slowest to determine market direction, the middle one to trade, and the fastest to anticipate entryGe?it. (t is important that the timescales are in phase. Hershey refers to the phasing as harmonics.
1. Aractals timescales< a. eekly, daily, 0min trading the daily< b. Maily, 0min, 5 min trading on 0 min< c. 0,5,1 min trading on 5 min< d. harmonics enter when synchronised /. (ndicators a. Folume i. look for volume to e?ceed Mry Kp MK< within first / hours of the day. >nter when volume e?ceeds to times MK Airst 3ising Folume, A3F< then enter. b. macd 5,1,D< i. *away+ macd significantly away from 2ero and turning ii. slope of macd strength of trend iii. divergenceGconvergence of macd and ma of macd iv. rate of change of slope of macd c. stochastics 5,,< . 6atterns a. 3ocket stochastic goes up, stays perched and entwined b. 6ennants G flags *omments from Jack Hershey )onitor the Mry Kp volume of the stock using >!M data. 'ook at the daily chart for a period of si? months. 'ook at the volume of the stock prior to the last five times it has gone up 10 to /0 ; over a few days time. 3ecord that daily volume to two significant figures roughly determine it<. atch the stock approach that volume as the days pass. #otice that every day it continues in MK it is getting closer to breaking out in volume and then, later, breaking out in price.
hen the day comes that the stock volume begins to rise in t he morning, note if it reaches the dry up MK< volume within two hours of the opening price. (f it does place the stop order or watch the price rise to that point and go in with a )arket order. MonIt try to get it cheaper...get it when it has started the trend to best eliminate risk. &ell the stock. !nce you own the stock keep track of the volume at hourly intervals each day. %s long as the stock has sold more shares per hour than the day before, keep the stock. 'ook at the last five times the stock has done this in the last si? months. )ake a note of how many days it takes to go up in price and how many days it takes for the volume to not again e?ceed the previous days volume. -he two numbers you get will be consecutive numbers. -he price number of days will be one day greater than the volume number of days. (f you sell the stock on the smaller day you will make twice as much money per year than if you sell on the longer number assuming you are in the market much of the time this way. -he numbers you will be using are around D to E usually. 3aise stops daily. (t works like getting a pay check periodically.
MR) G/G0/
