In The Trading Cockpit with the O'Neil Disciples

Praise for In the Trading Cockpit . . .

"Morales and Kacher want you to see an alternative to popular and traditional dead end strategies (i.e., buy and hope). Absorb the insights of In the Trading Cockpit with the O'Neil Disciples and put yourself in position to think differently—and profit."
— Michael W. Covel, Bestselling author of Trend Following and The Complete TurtleTrader; President, Trend Following

Your hands-on guide to mastering powerful trading methods inspired by stock market legend William O'Neil

Written by two former William O'Neil + Co. employees who have spent years building upon the lessons they learned working alongside the master, this book delivers powerful trading techniques based on the O'Neil model that you can put to work in your own portfolio, right away.

The follow-up to their bestselling Trade Like an O'Neil Disciple, In the Trading Cockpit with the O'Neil Disciples goes beyond the descriptive narrative of the former book to provide you with step-by-step guidance and all the practice you need to quickly master those tried-and-true methods and make them an integral part of your trading system.

You'll find:

• Clear, step-by-step explanations of powerful new trading strategies, including techniques for buying pocket pivots and gap-ups
• Hundreds of annotated examples—with charts—of real-life trades from the authors' own experiences with detailed analysis of what worked, what didn't, and why
• Set ups with buy, add, and sell points for both winning and losing scenarios
• Dozens of skill-building exercises that help you quickly master the techniques described
• Tried-and-true stock shorting techniques based on William O'Neil's methods

Written by established experts Gil Morales and Dr. Chris Kacher, In the Trading Cockpit with the O'Neil Disciples is an indispensable guide to mastering proven strategies for trading stocks for record profits in every market environment.

Acknowledgments xiii

Introduction xv

Disciple Boot Camp xvii

Pocket Pivot Buy Points xviii

Buyable Gap‐Ups xxi

Moving Average Violations xxiv

The seven‐Week Rule xxv

As You Begin xxvi

Chapter 1 the OWL ethos 1

Quick Quiz 2

Chart Exercises 7

Identifying Bases 7

The Line of Least Resistance 9

Answers to Quick Quiz 14

Answers to Chart Exercises 19

Identifying Bases 19

The Line of Least Resistance 24

Summary 32

Chapter 2 Mind Games and Mazes 33

Embracing Uncertainty 33

The Psychology of Follow‐Through Days 34

Lockheed‐Martin: An opportunity Derived from Uncertainty 37

Silver: A Crystalline trend amid the Uncertain and Murky Waters of 2011 40

The Uncertainty of Company Earnings Announcements 42

You Must Lose to Win 44

The Need for Labels as a Heuristic Achilles’ Heel 46

Price Bias 48

Find Experts You Can Learn From, Not Have to Rely On 51

Paper Trading versus Real Trading 52

Awareness and Preparation 53

In Summary: Know Thyself 56

Chapter 3 2011: A Postmortem for the New Millennium 59

Reviewing the 2011 Trade Blotter 62

Using Spreadsheet Analysis with Chart Mark‐Ups 63

Three Swings, Three Strikes 64

The Window of Opportunity Has a Silver Lining 68

More Roads to Nowhere in 2011 74

Summarizing the Lessons of 2011 80

Chapter 4 Developing Your “Chart Eye” 85

What is a Chart Eye? 86

The Visual Effect of X‐ and Y‐axis Scaling 88

Linear versus Logarithmic Charts 90

Bars or Candles? 92

Moving Average Stress Syndrome (MASS) 95

Indicators: Useful or Useless? 102

Are Intraday Charts Useful? 105

Monitor Color and Formatting Schemes 108

What You See is What You Get 111

Chapter 5 Pocket Pivot Exercises 113

Conclusion 195

Chapter 6 Buyable Gap-Up Exercises 197

Conclusion 263

Chapter 7 A Trading Simulation 265

First Solar (FSLR) 2007–2008 266

Acme Packet (APKT) 2010–2011 318

Conclusion 340

Chapter 8 Frequently Asked Questions 341

Pocket Pivot Buy Points 341

Buyable Gap‐Ups 354

Stops and General Selling Rules 355

General Topics 359

Short‐Selling 367

Market Timing Model Building 370

Appendix List of Companies (with Ticker Symbols) Referenced in the Book 375

About the Authors 379

Index 381

Gil Morales is a co-Managing Director and Chief Portfolio Manager of MoKa Investors, LLC. He is the coauthor and publisher of the investment website, VirtueOfSelfishInvesting.com, as well as the author and publisher of the Gilmo Report (www.gilmoreport.com), and was formerly a senior proprietary portfolio manager for William O'Neil + Company, Inc. During his tenure there, Gil also functioned as vice president and manager of the Institutional Services Group, responsible for advising more than 500 of the world's largest and most successful institutional investors, including mutual funds, pension funds, hedge funds, trust companies, and banks. In 2004, Mr. Morales was appointed chief market strategist for William O'Neil + Co., Inc. and coauthored with William J. O'Neil the short-selling treatise, How to Make Money Selling Stocks Short (Wiley). Between 1998 and 2005, Morales achieved an audited return of 10,904% in his personal account, as verified by Rothstein Kass.

Chris Kacher, PhD, is coauthor and publisher of www.VirtueOfSelfishInvesting.com. His investment career began in 1995 when he founded one of the first Internet-based stock advisory services. In 1996, he joined William O'Neil + Co., Inc. as a research associate before quickly being promoted to senior research analyst and senior proprietary portfolio manager for the firm in 1997. From 1996 to 2002, Dr. Kacher achieved a verified return in his personal account in excess of 18,000%, as verified by KPMG. He received a BS in chemistry and PhD in nuclear physics from the University of California at Berkeley, where he studied under Nobel Laureate professor Glenn Seaborg and helped discover element 110 on the Periodic Table of Elements and confirm element 106, which his group named Seaborgium.

In their bestselling Trade Like an O'Neil Disciple, Gil Morales and Dr. Chris Kacher described their experiences working side-by-side with market legend William O'Neil and how they made a fortune using his original stock trading strategies. Now, in a book that is sure to become an overnight trader's classic, Gil and Chris arm you with a set of proven analysis techniques and trading strategies that can only be described as a quantum leap in the evolution of the O'Neil model and the CANSLIM approach to stock trading.

Frustrated by the sideways markets of the mid-2000s, as well as by what they perceived to be undue constraints inherent in the O'Neil model, the authors spent several years examining hundreds of charts and analyzing thousands of individual trades to see how they could improve on the results they had been getting using O'Neil's strategies. The outcome was a set of powerful techniques for identifying and capturing stock breakouts early in their base and riding them up for maximum profit taking.

Designed to serve as both a clear, detailed introduction to those tried-and-true techniques and the theory behind them, and a how-to guide/workbook to quickly mastering them and making them part of a customized home trading system for optimum returns in all market conditions, In the Trading Cockpit with the O'Neil Disciples:

• Introduces you to powerful trading techniques built upon the methodologies pioneered by William O'Neil and used at William O'Neil + Co.
• Features accessible, step-by-step guidance for buying pocket pivots, continuation pocket pivots, and gap-ups, as well as the Seven-Week Rule for when to sell
• Supplies practical insights into O'Neil's short-selling techniques along with valuable advice and guidance on how to use them to utmost effect
• Teaches by example with hundreds of real-world trades—both winners and losers—including detailed set ups with buy, add, and sell points
• Provides dozens of practice exercises that let you work through the techniques described individually and in conjunction, in a variety of scenarios
• Is packed with the actual charts used by Morales and Kacher to analyze stock movements and predict price changes of an array of leading stocks

Packed with invaluable technical information, powerful stock analysis tools, and tons of real-world examples and practice exercises, In the Trading Cockpit with the O'Neil Disciples is your ticket to the record-breaking returns investors want and deserve—in bull, bear, and sideways markets alike.

Praise for In the Trading Cockpit . . .

"Morales and Kacher want you to see an alternative to popular and traditional dead end strategies (i.e., buy and hope). Absorb the insights of In the Trading Cockpit with the O'Neil Disciples and put yourself in position to think differently—and profit."
— Michael W. Covel, Bestselling author of Trend Following and The Complete TurtleTrader; President, Trend Following

Your hands-on guide to mastering powerful trading methods inspired by stock market legend William O'Neil

Written by two former William O'Neil + Co. employees who have spent years building upon the lessons they learned working alongside the master, this book delivers powerful trading techniques based on the O'Neil model that you can put to work in your own portfolio, right away.

The follow-up to their bestselling Trade Like an O'Neil Disciple, In the Trading Cockpit with the O'Neil Disciples goes beyond the descriptive narrative of the former book to provide you with step-by-step guidance and all the practice you need to quickly master those tried-and-true methods and make them an integral part of your trading system.

You'll find:

• Clear, step-by-step explanations of powerful new trading strategies, including techniques for buying pocket pivots and gap-ups
• Hundreds of annotated examples—with charts—of real-life trades from the authors' own experiences with detailed analysis of what worked, what didn't, and why
• Set ups with buy, add, and sell points for both winning and losing scenarios
• Dozens of skill-building exercises that help you quickly master the techniques described
• Tried-and-true stock shorting techniques based on William O'Neil's methods

Written by established experts Gil Morales and Dr. Chris Kacher, In the Trading Cockpit with the O'Neil Disciples is an indispensable guide to mastering proven strategies for trading stocks for record profits in every market environment.