Handling the Hannaian Spike, Drop, & Roll
Updated .....02/04/2000, 02/06/2000, 02/08/2000, 2/20/2000, 3/01/2000

(Underlined italicized text represents the latest additions to this training guide. Underlined text represents the previous additions to the training guide)


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.

 

For Further details of the Hannaian Business network and its associated business opportunities visit the Business Opportunities Section of the Hannaian Publishing Website at http://www.hannaian.com/distribr.htm