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guide. Underlined text represents the previous additions
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In the modern volatile markets where stock prices rise
and fall quickly, understanding trading techniques to
maximize profits and minimize losses is an absolute
necessity. Utilization of the H.I.P.S. Investment System,
designed to concentrate on small priced issues which
produce explosive growth, requires a thorough
understanding of handling two specific circumstances
encountered fairly frequently in the H.I.P.S. Program. To
facilitate the identification and recognition of these
phenomenon we refer to them as the "Hannaian Spike" and
the "Hannaian Drop".
The Hannaian
Spike
The Hannaian Spike refers to a situation encountered
primarily in small priced issues which have the potential
of rapidly increasing in price over a short period of
time and then falling just as rapidly. Generally the
explosive rise that occurs can only happen in small
priced issues.
The Hannaian Spike is a beautiful thing and should be
anticipated as an important profit taking opportunity. It
is one of the major trading opportunities which an
otherwise long term holder can and should use to maximize
profits. It is very special and peculiar to H.I.P.S. type
stocks.
The following is a description of this phenomenon
1. A precipitous rise in price of several hundred
percent.
2. Viewing the rise on a one year or six month chart
it appears to go straight up at an angle of 75 to 90
degrees.
3. There is a decline in price just as precipitous as
the rise.
4. The decline bottoms out at approximately 50% to 75%
of the rise.
5. There is a secondary spike immediately after the
fall bottoms out, regaining a portion of the price in the
primary spike.
6. There is a secondary fall back to or lower than the
original bottom of the primary drop.
7. Usually most major spikes are finished within two
or three days, but can be completed within a day.
8. Usually the stock is very small in price and has
attributes like the valuable intellectual property base
of most H.I.P.S. type stocks, which makes it suitable for
spiking.
This phenomenon may occur at any time but usually
occurs when the general market initially takes notice of
the issue or when some news or aspect of the issue comes
to light. The spike may be enhanced by day traders who
are on the prowl looking for stocks which are on the move
up. Day traders watch for stocks which may be in the
early stages of a spike and by the second day of the
spike they are fully involved driving the spike further
and then taking out their profits and assisting or
precipitating the fall. The opportunity for profit taking
for the day trader and of course the H.I.P.S. investor is
excellent because of the predictability of the events.
The opportunity to execute the "Spike Sale Buy Back"
strategy to make immediate profits and maintain the same
position in the stock is uniquely profitable.
Once the Hannaian spike is underway it must be
immediately recognized and followed closely. The trader
or investor must watch it closely to maximize the profit
potential of the spike. If it is not followed closely
tremendous profits can be missed. This opportunity
represents one of the most predictable and best
opportunities to make major profits in the markets. The
major problem is deciding when to sell. It is not always
possible to predict the peak of the spike and therefore
strategies must be used to mechanically take the profits
out at the appropriate time. Generally, if possible it is
best to sell before the spike "breaks", meaning before
the drop in price occurs. This is preferable because
there is less pressure in the selling decision and the
sale can generally be made with a "Limit Order" securing
a good and predictable price. If the sale is made on the
downside the pressure to catch a good price is increased
and a "Market Order" must generally be used. The market
order in such situations allows the market makers
executing the order to reap major profits for himself and
leaves the seller with a significantly reduced sales
price on many occasions.
One way of determining when to sell on the upside of
the spike is to look at the steepness of the spike on a
six to one year chart. The closer it is to a spike
straight up (90 degrees) the more likely it is to break
sooner. The starting price of the spike must also be
considered and the percentage rise calculated. Sometimes
the peak can be identified by a slowing of the rapidity
of the rise or a stall in the price rise over a
relatively abnormally long period, representing
resistance to further upward movement. This resistence
period can be helpful if spotted and recognized because
it can assist in recognizing the impending drop, but not
all stocks exhibit it. The resistance period is easier to
recognize on a real time moving chart, but is not
generally a good way to fully base your sell decision. In
any case the trader should not be too concerned about
when the peak will occur if substantial profits have
already accumulated. It is
almost always better to take the profits if you are
satisfied with the accumulation rather than lose it
because you cannot react in time to the rapid decline
that is to follow.
An important point to understand is that the stocks
most likely to have Hannaian Spikes are OTC:BB stocks
which are not eligible for stop orders, or stop limit
orders which can protect profits when the stock falls.
This means that if you miss the sale on the upside you
have no other way to protect your profits on the drop
unless you place a market order at the right time. This
can be a problem if you have to call the broker on the
phone because the brokerage does not allow online trading
in OTC:BB stocks (Ameritrade e.g.). If you cannot get to
the broker in time you will have lost your profits. The
importance of a broker which allows trading OTC:BB stocks
online (e.g. WitCapital, E-Trade, Fidelity, SureTrade) is
very important. In addition, the phone placed trade
requires more procedures and is slower, particularly if
it is a large order.
The 5% Drop
Rule
If you miss the upside sale
it is very important that you have a mechanical process
in place to unemotionally make the sale decision on the
downside. Generally a good rule of thumb is to use a 5%
drop in price as a sign that the spike has been broken.
The market order must immediately be placed to sell. If
you must place a phone order you should probably be
placing the call after a 3% drop. In reality if the spike
has indeed broken, by the time the sale instituted at 5%
loss is finally executed you will have lost at least 10%
of the value. Always use the "Bid Price" in
figuring the outcome of the sale. If the sale is
online the required information should be pre-entered so
that the sale can be accomplished with the push of a
button. It is very important to have everything lined up
and ready to execute the trade efficiently. If the issue
is eligible for a stop order placing a stop order at a
particular price is the preferable method of protecting
against the precipitous decline in price. However,
remember that stop orders are not generally available
with many of the applicable stocks.
An important reminder is that should you miss the sale
on the primary spike or fall, there will generally be an
opportunity to sell on the secondary spike. However this
should not be relied on since the secondary spike does
not last very long and may not rise very high.
Another important point is that
the trader should be weary of holding out to see how far
the stock can go up or how good the potential is for
further run up in price of the issue. These concerns
input an emotional tie into the transaction which will
often lead to indecision at the wrong time. It is
important that the handling of this spike be as
mechanical and non-emotional as possible.
Also if the stock continues to go up as happens
sometimes in less steep or gentler spikes the position
can be bought back if desired, for only a slight
difference in price.
"Spike Sale Buy
Back"
If the issue does have potential for further run up in
price it can always be bought back using the "Spike Sale
Buy Back" technique, because the final resting place of
the stock is much lower than the sale price. The trader
can often buy the issue back at a lower price and pocket
the profits if he or she desires to keep the same
position in the stock.
Catching The
"Day Ending Spike"
One very important technique is
to search for a "Day Ending Spike". Many Hannaian Spikes
begin with unusual upward moves in the price of a stock
within the last hour of the day. The stock then ends the
day on a full Hannaian Spike or on a significant up
movement within the last hour. This is usually a sign
highly predictive of a full Hannaian spike on opening in
the morning or certainly a cross quote situation with the
stock gapping open up significantly in the
morning.
This is one of the most predictable signs of an
impending Hannaian Spike which allows a trader to buy
into a stock that is spiking or about to spike. The
predictability allows for an almost certain profits and
denotes one time when you may want to consider buying in
big time on these issues to take advantage of the gap
open that is almost certain to occur in the morning.
What this means is that you should make it a habit to
search your current holdings and other stocks you are
interested in during the last hour of trading every day.
This strategy will provide you with many positive buy in
opportunities over time.
One way to effectively find stocks which are spiking up
during the last hour of the day is to use the global scan
feature of the Internet Trader stock tracking software.
Global scan is a screening type process which can be
configured to find stocks which change by certain
criteria. It can update the report periodically
throughout the day and report it in the format you
choose. It is a powerful tool to use generally, but
particularly so, near the end of the day to find stocks
which may be spiking. Internet trader can be downloaded
from the link on the Hannaian Stock Research Tools
Page.
Using The Proper
Tools
It is important that the trader
has the proper tools. The spike should be observed in
real time and with a chart that is updated in real time.
MedVed Quote tracker has an excellent free real time
source called "FreeRealTime" and the charts included in
MedVed are updated in real-time and can be used in full
screen view to easily track the minute by minute
movements. The FreeRealTime source file must be manually
downloaded, unzipped, and put into the folder on you
computer which contains the Quotetracker files. The file
can be downloaded from:
http://www.quotetracker.com/download/frt.zip
MedVed has warned that using
FreeRealTime with Quote tracker will sometimes cause your
FreeRealTime service to be terminated, so use it only
during critical times. For noncritical situations use
some other real time or delayed quote source like PCQuote
or Yahoo Delayed.
Following the price movement on
the charts in real time is invaluable because the moving
visual graphic of the spike formation provides a view of
the action which the numerical quotes cannot provide.
Understanding the charts and closely analyzing them is
an essential aspect of handling the spike. A good
analysis of charting can be found on the BigChart.com
website and in the excellent help section of the Internet
Trader Stock Tracking program which can be downloaded
from the link on the Hannaian Stock Research Tools
Page.
NASDAQ issues should also be
watched in Level II format.
The Hannaian
Drop
The Hannaian drop is similar to the Hannaian spike
except that there is no spike prior to the event. Many
times adverse events will impact a stock's price by
precipitously dropping the price from its normal
position. This drop must be recognized and a stop order
(if available), or properly placed market order must be
instituted after a precipitous 5% decline in price.
As the H.I.P.S.R.S. philosophy suggests when this
occurrs the stock needs to be evaluated for "Buy Back" or
"Buy In" after evaluating the cause for the drop. many
times the stock will remain a top long term prospect and
in such cases the stock may be bought back or bought into
if not previously held.
The Hannaian
Roll
The Hannaian Roll refers to a special kind of
roll in the price of an issue in which fairly quick
profits can be made. Some stocks rise and fall in price
on a regular basis. A review of a stocks charts will
reveal this type of roll and the magnitude of change in
price, time, and intensity. The Hannaian Roll is defined
as a regular rise and fall in the price of an issue over
a period of time no more than two weeks and often in as
little as one day. This represents what may otherwise be
describe as a quick tight roll in price. In the modern
market place this probably reflects the activities of day
traders and others who now seem to work stocks for quick
profits. When these quick or high intensity rolls occur
they appear to continue for a period of weeks until the
traders move on somewhere else.
Stocks may go through other types of rolling
behavior, however when recognized the Hannaian Roll
offers a unique opportunity to make quick profits. In the
HIPS Research System they are one of the three or four
times that the otherwise long term HIPS investor becomes
a trader. Generally sales of a stock on a Hannaian Roll
should be followed by a "Buy Back" which then allows for
additional profits at a later time as the stock continues
on the Hannaian Roll.
Finding the
Spike, Drop or Roll
To make sure you find or discover the spiking stock
(particularly when following a large number of stocks)
you must regularly follow your portfolio throughout the
day to spot potential trends. You must have your
portfolio tracking software (MedVed Quote Tracker)
configured to sort the stocks by value change in
ascending order, with the largest increases for the day
automatically rising to the top of the listings. In
addition the alert features of the program should be
programmed to provide you with appropriate alerts should
spike conditions occur. Spikes happen so quickly and the
duration may be so brief that you must use these measures
to ensure you do not miss the opportunity. Most major
spikes will be finished in a two day period.
Many of these spikes begin to happen overnight.
With more and more after hours and pre-market trading
stocks now "Gap Open" (Open at higher prices than they
previously closed) at the opening of the market in the
morning. Using MedVed Quote tracker and some other stock
tracking software you may notice early volume
registration, early news, and "cross quotes" where the
bid price exceeds the ask price and the last price. Based
on the source of the quote information you use in MedVed
these early signs of an impending "Gap Open" may happen
as early as 30 minutes before the market opens. Sometimes
you can call the brokerage before the market opens and
they will confirm such pre-market situations. When these
situations are present you must be ready for a potential
Hannaian Spike or the continuation of the previous day's
rise in price.
Buying into a
Spike
Sometimes these pre-market indications will
allow you to "Buy into a Spike" where you did not
previously own the stock. Buying into a spike is very
risky but can produce excellent profits if executed
properly.
Advantages and
Disadvantages
There are several advantages and disadvantages to
selling on the upside or downside. When selling on the
upside of the spike you run the risk of not catching most
of the rise in price because it is so difficult to
predict the peak. Also if the run up after the sale is to
high and the resulting floor of the fall to high the
ability to execute an effective spike sale buy back will
be limited. Selling on the upside however is less
pressured and provides a more predictable final sale
price.
Selling on the downside is more risky since the
necessity to place a market order in OTC:BB stocks will
make getting a good and predictable price very difficult.
It is almost certain that the price you get will be
significantly lower than where the order was placed. If
you must make a phone order you must be placing the call
after a 3% drop. There is great pressure to act quickly
and decisively on the downside. The benefit to selling on
the downside is the greater opportunity to sell within a
predictable point from the peak, increasing the chance
that you will get most of the rise in price if you act
quickly after recognizing the major break in the spike.
This will require you to mechanically utilize the 5%
spike drop rule.
Keeping Out of
Pressurized Situations
Perhaps the most important reason for having a
mechanical non-emotional plan and approach to handling
the Hannaian Spike is to avoid the entrance into a
pressurized environment. Once a major problem occurs by
missing the spike opportunities, traders can fall into
this type of environment which precipitates a series of
seemingly endless blunders. In actuality the apparent
blunders are usually beyond your control because of the
unpredictability and turbulence of the market for a
period of time after the spike breaks. If this happens
perhaps the best solution is to contact a trusted and
experienced colleague or expert who will assist in
guiding you through the recovery process. It is important
to realize that such situations will happen to everyone
sooner or later. No one will be immune and perfect in
handling this very important phenomenon. Even when you
win big you will have reservations about not having won
bigger. You may feel that had you done something
different your profits would be greater. This is only
normal to be disappointed in some way, even in winning.
Your understanding of this will go a long way to getting
you back on track. Like everything else you won't be
perfect, you will win some and you'll lose some. In the
long run your overall track record will be on the
positive side if you are properly prepared and continue
to remain so.
Remember, the real winners are the ones who had the
opportunity to even participate in the spike opportunity.
Most investors will probably totally miss the
opportunity. Those who participate with any profits
whether large or small are really all winners.