Q & A with Authors Gil Morales and Chris Kacher
Chris Kacher and Gil MoralesHow does In the Trading Cockpit with the O'Neil Disciples differ from your first book, Trade Like an O'Neil Disciple?The new book is in fact a logical follow-up to the publication of our first book as well as the simultaneous launching of our website back in August 2010. Since then, both the first book and the website have brought us into contact with thousands of investors who, with their equally numerous questions, have provided us with interesting and meaningful insight into how the information and methods we cover in our first book and our website is processed and understood. In other words, these questions have helped us to understand what investors have difficulty understanding, and this new book largely addresses those issues. As well, we delve into the nitty-gritty of utilizing our methods with discussions and introspective quizzes regarding one's trading psychology, detailed trading simulations, and the entire issue of exactly where the "rubber meets the road" when it comes to using our enhanced O'Neil-style trading and investing techniques.
What are some of William J. O'Neil's trading techniques and what makes them a timeless ongoing winning strategy?While the times may change, human psychology does not, and William J. O'Neil built upon the work of his predecessors such as Jesse Livermore, Nicholas Darvas, Richard Wyckoff and others to originate his system of finding and investing in entrepreneurial-oriented growth stocks. The essence of O'Neil-style investing is the search for innovative companies creating new products and services that drive the leading edge of any economic growth phase, such as former and present market leaders like Apple (AAPL) in the New Millennium; America Online (AOL) in the late 1990s; Cisco Systems (CSCO) throughout the 1990s; and Microsoft (MSFT), Walmart (WMT), and Home Depot (HD) in the 1980s.
It is companies like these during their high growth periods that are the de facto lifeblood of the world economy and offer some of the most compelling profit opportunities in the stock market. O'Neil essentially codified the fundamental and technical characteristics of these stocks from a historical perspective that is then utilized as a real-time template for finding similar leaders in the present.
How do you incorporate your own trading strategies with those of O'Neil?Our trading strategies are intended to enhance one's use of the O'Neil method, not replace it. Based on our experience as former portfolio managers for William J. O'Neil + Company and investors who have used his methods for well over two decades, we found that the main difficulty for most investors is not in being able to find a potentially big, winning stock, but in understanding proper entry points and, even more importantly, how to handle a big, winning stock once you have it in your portfolio. By overlaying the O'Neil system with additional buy points like "pocket pivots" and "buyable gap-ups," we arm readers with practical tools that not only identify concrete buy points, both at the outset of a new trend and in the middle of an existing trend in a leading stock, but also provide early and alternative entry/buy points in potential leading stocks in an era where the "crowd" sees obvious technical buy signals such as range or base breakouts.
What is the Seven-Week Rule for when to sell?The Seven-Week Rule is a practical position-management system that identifies the use of the 10-day and 50-day moving averages at appropriate junctures within a leading stock's overall price move, providing concrete stop-loss points along the way that help investors preserve gains. Our studies show that leading stocks will tend to follow either the 10-day or 50-day moving average, and that they can shift from following one to the other at various points during an intermediate-term upside price trend. Using the Seven-Week Rule to determine which moving average is used at which point in combination with pocket pivots and buyable gap-ups provides the investor with a practical system for buying, building, handling and selling positions in big, winning stocks.
What key technical signals can be used today to analyze stock movements and predict the price trends of an array of leading stocks?We use pocket pivots and buyable gap-ups not only as buy signals, but also as a feedback mechanism for assessing the market's health and bull market potential. In strong, constructive market environments, leading stocks will often show a number of such buy points and provide investors with concrete, ready buy signals upon which to act in real-time. In a healthy market environment, upside follow-through will generally be seen following such buy signals. In a weaker and less trending market environment such as we believe we are in today, these buy points will tend to fail more often or show little upside progress after the actual signal. In this case, such a "feedback loop" also serves an extremely useful purpose in telling us that the market environment is a dicey and perhaps dangerous proposition where the odds of upside success are not in our favor.