CONTENTS
Acknowledgments
Foreword
Preface
Chapter 1: The Opening Bell
Chapter 2: Terms You Need To Know Before Starting
Chapter 3: Rules Are Made To Be Broken—Except These
Chapter 4: Creating The Hit List
Main Criteria
Minor Criteria
Part One: Main Strategies
Chapter 5: Expansion Breakouts™
For Buys
For Short Sales (Hereby Known As Expansion Breakdowns)
Summary
Chapter 6: 1-2-3-Pullbacks™
For Buys
For Short Sales
Summary
Chapter 7: Stepping in Front of Size™
For Buys
Summary
Chapter 8: Expansion Pivots™
For Buys
For Short Sales
Summary
Chapter 9: 180’s™
For Buys
For Short Sales
Summary
Part Two: Ancillary Strategies
Chapter 10: Gilligan’s Island™
For Buys
For Short Sales
Summary
Chapter 11: Boomers™
For Buys and Short Sales
Summary
Chapter 12: Slingshots™
For Buys
For Short Sales
Summary
Chapter 13: Whoops™
For Short Candidates
Summary
Chapter 14: Lizards™
For Buys
For Short Sales
Summary
Chapter 15: Secondaries
Summary
Chapter 16: Putting The Pieces Together—The Most Important Chapter
Summary
Chapter 17: Mind Over Money
Chapter 18: Walking The Talk: A Week of Hit-and-Run Trading
Summary
Chapter 19: The Closing Bell
Appendix
About The Author
Copyright © 2004 by Jeff Cooper
Published by John Wiley & Sons, Inc., Hoboken, New Jersey
Published simultaneously in Canada
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Library of Congress Cataloging-in-Publication Data:
To my wife Suzie, my father Jack,
and in memory of my mother Josephine.
“I have taken more courses and attended more stock trading seminars than I can remember. I used to originate my own setups using the usual programs that are available in the marketplace—barely achieving mixed results. Your Hit and Run Trading approach has kept my trading solidly profitable, with minimal risk. I cannot say that about any other strategy or service I have ever used. Trade setups using your patterns have the highest success of any I have seen. My trading results have improved dramatically since I began using the Hit and Run Trading Methodology.”
— Jim Trockman, Active Trader
ACKNOWLEDGMENTS
I would like to thank David Reif, my partner at Mutual MoneyFlow Management (www.mutualmoneyflow.com); TheStreet.com for their support and for offering a continuing venue to express my ideas; to Jaye Abbate, Kate Clark, and Chris Myers for all of their efforts in guiding this book back to the marketplace; and to Ruth Roosevelt for her insight.
FOREWORD
Making money in a great bull market can be fairly easy. You buy momentum; you make money. You buy value; you make money. You select midcaps, they work; you buy big caps down a few from their highs and you ring the register a few weeks later for nice gains.
Everything changes though in a tough market. In a tough market, almost everybody looks stupid, bereft of ideas, unable to comprehend the larger picture or the short-term.
Everybody except Jeff Cooper. I’ve been hearing about Jeff Cooper’s market analysis and strategies ever since my wife, Karen Cramer, the Trading Goddess, left Steinhardt Partners, one of the greatest of all hedge funds, to come to work with me as the head trader of our aggressive hedge fund in 1987.
I was a fundamentalist, freshly minted from four years in brokerage at Goldman Sachs, trying to find high quality ideas that I could ride for glory. Karen could care less about “high-quality” ideas. She said that we had to make money in good times and bad and we needed weapons; weapons that didn’t need a rising tape. She said we needed Cooper. We had promised our investors good returns regardless of the direction of the market, but without a constant generation of potential shorts and longs from Jeff Cooper, she said, we wouldn’t be on our game. At the time, I didn’t know him from Adam. “Sure lets hire Cooper,” I said.
“No,” she explained. “Jeff Cooper is this legendary secretive guru out west, you take his service, you read his books, you understand his method of going in and out without dogma, without religion, and you run with it.”
And so we did. At first, I professed bafflement. Lots of argot; lots of mystery. But the ideas worked, right from the get go. I would come to love the missives, still do, as Cooper’s worldview turned out to be totally in synch with the market’s incredibly idiosyncratic ways. For Karen, it was non-stop Cooper. She began the day with the list of short ideas he generated—they were voluminous then, and voluminous now—and said, “meld your fundamental look with the ones he says are golden and we’ll be ready for rough times.” But, just as quickly, she would add that if we could make some calls on Cooper’s longs to get some conviction we could profit from the spikes that we got that year. As someone who loves options, too, I found that when Jeff’s conviction was highest and I felt strongly about a name, we could hit ’em even harder with calls or puts to augment the trades. The result? Cooper helped us deliver consistent 24% returns after all fees year-after-year, including a couple of down years that would take your breath away.
It was only later, after I retired from the day-to-day grind that I actually got a chance to speak to the master. Not that it matters, because this is money, but it turns out the secretive master is an incredibly nice, good man who wants you to win, who senses the good that he does by helping those of us who need input to generate the good ideas day in and day out. Fair, honest, with none of the pretensions or biases that clutter the thinking of so many who work side-by-side with me on Wall Street, Cooper delivers a clearheaded vision of the market everyday.
He does so, he can be that consistent, because of the grounding contained in this book that was first published several years ago, now recently updated. When you read it, you will see why it doesn’t matter what kind of market we have; Cooper’s vision will pay off.
I know a lot of belly-achers who think that without a clear trend like we had in place for so much of the 1990s, it is “impossible” to make money. People throw up their hands with despair at a sideways market as if somehow a sideways market wears all traders down and produces only losses from any side you chose to engage in.
That’s wrong as you will find here. In fact, I would say that the single most rewarding markets to use Jeff’s methods in are the ones that seem the most futile to those who are less nimble or so orthodox that they can’t see that something one day can be long and then a week later can be short. Dogma-free, open-minded, aware of EVERY pattern that has ever held up under scrutiny to be a winner, Cooper can help you navigate this market or any other.
I never got to meet Jeff Cooper during all of the years that Karen and I regarded his passages as manna from the trading gods to feed our multi-million dollar maw. But I loved—and still love—the quirky way this legend has ingratiated himself into our existence. There’s still moments where I scratch my head and simply confess I am not smart enough to understand every bit of Cooper’s wisdom, yet I know that with a rereading of this classic, I will come even closer to mastering this legend’s trading philosophy.
—James J. Cramer
PREFACE
“Good judgment comes from experience, experience comes from bad judgment.”
—Jim Horning
It has been eight years after the release of the original Hit and Run Trading book and six years since the release of its companion work, Hit and Run Trading II. I can honestly say that what I did not realize then is that although unintended, writing these books has proved to be a selfish endeavor: I benefited more from the experience than many of you who will read the books. Why? It is my experience, that when you teach it, you understand it more than when you learn it.
The endeavor forced me to identify concisely what I did day in and day out as a trader to make a living. It forced me to flesh out the subconscious skeleton on which I traded, creating a recognizable, cohesive whole. Writing the books made me examine what really works and what doesn’t. In short, it required me to make crystal clear my buy rules and sell rules.
What I suspected when I sat down to write Hit and Run Trading and now know is that human nature being what it is, people never take things just the way they’re given. They tend to want to build a better mousetrap. Folks like to prove how smart they are. I know this because even to this day, I still sometimes try to outsmart my own strategies. Rather than believe what I see on the charts and keep it simple, I’ll occasionally second-guess myself.
Additionally, people tend to make things more complex and attribute more value to something the more complicated it seems. In my experience, in trading, less is more. In the heat of battle, traders don’t have the luxury of quantitative analysis and thinking things over; they must be able to make decisions and pull the trigger: markets turn on a dime, many traders can not. I guess it’s just human nature to over-analyze and intellectualize. But, in the markets this can be the kiss of death. The old saw ‘keep it simple, stupid’ may sound trite, but it in my experience, keeping it simple is what allows us to make sense out of market chaos.
Most of the people who gravitate to Wall Street come from a base of greed: they are trying to understand everything. Sometimes the more you try to see, the less you see. Speculation is observation; understanding isn’t necessary and may just get in the way. In the markets, it isn’t important what we think should be happening; it’s only important what is happening. I remember a well-known financial commentator who was bullish all through the first half of 2002 saying, as the market was water falling into the July 2002 low, “I may have been wrong, but I was wrong for the right reasons.” That kind of thinking can be catastrophic to your financial health. Trade it, don’t think it.
The key to profitable buying and selling is to have a set of simple buy and sell rules that have shown a consistent edge over the past. That’s what this book will give you.