Jack Hershey method - Tomorrows paper today

Jack Hershey is a trader who posts on discussion groups such as misc.invest.technical, misc.invest.stocks,
and misc.invest.futures. He has traded since 1957, primarily commodities futures but also stocks. His method
is not published but he freely offers advice and guidance to anyone wishing to use his strategy. He is a great
advocate of illiam !"#eil"s $%#&'() methodology. He strongly dismisses the *buy and hold+ mentality
, stressing that it only makes sense to own a stock while it is going up in price, at its fastest rate. -rade the
trend , if there is no trend , get out. (f you are holding a stock that is falling in price, sell it. His method
focuses on the natural cycles of .uality stocks. He repeatedly stresses that prediction is futile , learn to
anticipate. &earching the newsgroups for *Jack Hershey+ results in over /000 posts, many of which are
several sides of %1. -he only minor drawback is that his writing style fre.uently borders on the
incomprehensible. &ummarising his method will inevitably lose some of the nuances.
Trading principles
1. !ptimi2ation of capital appreciation , compound interest formula
/. 3isk minimi2ation 4 achieved through .uality stocks
5. $omprehensive set of tools that integrate into an operational system.
1. Power of compound interest formula
6 7 %891:;<=n where 67 final capital, %7initial sum, ; is ; increase per trade, n 7 no of cycles
(mportant to realise that rate of growth is dominated by no. of cycles, #!- profit ;
>?@ 10; per cycle 9trade<, 50 cycles in three years, gain is 117 8 starting capital
Aocus on strongest portion of trend i.e enter late and leave early and move to ne?t candidate with stronger
trend 97 higher 3!(<. -his decreases ; profit per trade but increases number of trades. -his is what drives
the compound interest formula to get the ma?imum 3eturn !n (nvestment.
!. "uality stocks only
>arnings 6er &hare and 3elative &trength ranking B90 9in top 10;<
)in price C10, ma? price C50, min D5 day average volume of 500,000.
Aloat 9no. of outstanding shares< 5 to 50 million.
Aocus on stocks that regularly e?hibit D to E day cycles of /0; price movement
'ook for stocks where volume has dried up. -he cue to trade is then an increase in volume.
-rade D to E stocks, one per day, taking the middle 10; of each swing to give 10; every D to E days, per
stock.
#. $olume leads Price
Folume is the leading indicator for both buying and selling. Hershey focuses on the 6rice, Folume
relationship i.e. the use of volume as a leading indicator to price change.
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Folume change precedes price change. (f the Folume trend is increasing, then the 6rice trend will continue. (f
the Folume is decreasing then the 6rice trend will change. %lso, if the volume is relatively unchanging, then
the 6rice will drift slowly downward 9Hershey call this 1 oIclock drift.<.
(n essence it is saying that if volume is increasing the e?isting price trend will continue. hen volume
decreases e?pect the price trend to change. -he vertical arrows in the bo?es represent these conditions. -he
hourglass shape in the middle represents the se.uence of events for a stock one is trading. &tarting at lower
right, when when price is trending down and volume is decreasing, be prepared to buy. -he advance warning
to buy comes when volume increases again, with the buying being done as the transition is made from lower
right to upper left. -his is very important, you donIt actually buy Just because volume and price are trending
down as the diagram appears to suggest.

%s long as volume is increasing and price is increasing the trend should continue and you hold. %s volume
deceases with price increasing you make the transition from upper left upper right. -he smart seller sells
when the price then shows signs of faltering. hen volume picks up again and price falls you make the
transition from upper right to lower left for the sell off phase. -hen when volume decreases 9drys up< you
make the transition to lower right and get ready to buy the ne?t up4cycle. (f volume is way below average
and price falling we are in stage 1
-he price curve is an elegant mathematical description of the relationship between price, volume and
accumulationGdistribution. Ksing Loolean notation@
6rice Folume %ccGMist &core
Mown 90< Mown 90< Mistribution 90< 000 7 0 9Mry up<
Mown 90< Mown 90< %ccumulation 91< 001 7 1 9Mry up<
Mown 90< Kp 91< Mistribution 90< 010 7 /
Mown 90< Kp 91< %ccumulation 91< 011 7 5
Kp 91< Mown 90< Mistribution 90< 100 7 1
Kp 91< Mown 90< %ccumulation 91< 101 7 5
Kp 91< Kp 91< Mistribution 90< 110 7 D
Kp 91< Kp 91< %ccumulation 91< 111 7 7 9A3F<
%ll we are really interested in are stages 1, 0 and 7 9to go long<.
&horting would use the se.uence 5, 1, 5.
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%election of stock uni&erse
a. Ksing www.stocktables.com
b. -$/000 scans 9he no longer uses -$/000 since v5<
'a( %tockta)les selection
&et search to >6& and 3&B90. )in price C10, ma? C50. &ort the list by ; volume change.
e are looking to create 5 lists@ 7Is, 0Is and 1Is.
'ist the top 10 stocks with price increase and vol increase 7 7"s list
Arom bottom of list, select 1st 10 stocks with volB/0000 7 0"s list 9Mry Kp 1<
$ontinue up list, select ne?t 10 stocks with volB/0000 7 1"s list 9Mry Kp /<
e now have 50 stocks, in 5 lists of 10
-he 7Is are Ntaking offN, the 1Is are NlandingN, and the 0Is are preparing for take off.

$andidates only .ualify to be listed if@
1. D5 day moving average e?ceeds 500,000
/. Aloat 9no. of outstanding shares< is 5 to 50 million.
5. &tocks should e?hibit cyclic behaviour , D to E day cycles, /0; price range, over the last 5 or D months.
1. >6& is positive.
5. (nstitutional ownership B/5;

3ecently ( have found that most stocks are Just too thin to trade. ( have however arrived at the following
preliminary watch list@
%$M!, %''O, $%$(, $HL&, $!--,$FP, MAQ(, AH3Q, H!--, H6'%, (6($, )>#-, )()&, )!&O,
)!F(, #-LR, 6>$&, 3)$(, --(', L&#

&ome of these have drifted slightly under the >6& S 3&B90 criteria but ( gather that Jack doesnIt rush to
remove them from the list. Aor each stock, look back a few days and note 5 levels of volume@ the lowest 9Mry
Kp<, the highest 96eak< and the volume that indicates a breakout 9Airst 3ising Folume<. Oou may also see
some heavy volume increases that don"t have the desired effect. -his is the *failure to breakout+ level. A3F
should be 5 to 1 times MK. hen volume in 1
st
/ hours e?ceeds MK then bracket orders for entry. Hold until
pro4rata volume T D5day ma vol.
')( T*!+++ scans
5 progressive stages of dry up@
1. 99%FPF50 4 5 8 %FPF5< B 0< %#M 9%FPF5 B 0< Mry Kp 1
/. 9%FPF50 B / 8 %FPF5.D %#M %FPF50 B / 8 %FPF5< %#M 9%FPF5.5 4 %FPF5< B 0 Mry Kp /
5. 9%FPF50 B / 8 %FPFD.5 %#M %FPF50 B / 8 %FPF5< %#M 9%FPFD.5 4 %FPF5< B 0 Mry Kp 5
A3F
1. 9%FPF5 4 %FPF50< B 1000 %#M 9)%Q$1/D 4 )(#$1/D< B 0.5 8 )(#$1/D
5. 9%FPF5 4 %FPF50< B 1000
>?it conditions@
Painers !ver Oesterday Letween 5; and 10; (nc.
D. 99$ 4 $/< G $/< 8 100 B 5 %#M 99$ 4 $/< G $/< 8 100 T 10
Painers !ver Oesterday Preater than 10;
7. 99$ 4 $/< G $/< 8 100 B 10
&tage 1 or &tage 5
9H50 T 1.1 8 '5< %#M 9H5 T 1.1 8 '50<
&tage / or &tage 1
99)%Q$1/D 4 )(#$1/D< G )(#$1/D< 8 100
Pappers
' B H1 !3 H T '1 %#M F B 1000 !3 9$ 8 F< B /500
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Trading techni,ue
Kse 5 timescales 9Hershey calls these fractals<. Kse the slowest to determine market direction, the middle
one to trade, and the fastest to anticipate entryGe?it. (t is important that the 5 timescales are in phase. Hershey
refers to the phasing as harmonics.
1. Aractals 9timescales<
a. eekly, daily, 50min 9trading the daily<
b. Maily, 50min, 5 min 9trading on 50 min<
c. 50,5,1 min 9trading on 5 min<
d. harmonics , enter when synchronised
/. (ndicators
a. Folume
i. look for volume to e?ceed Mry Kp 9MK< within first / hours of the day. >nter when
volume e?ceeds 5 to 1 times MK 97 Airst 3ising Folume, A3F< then enter.
b. macd 95,15,D<
i. *away+ macd , significantly away from 2ero and turning
ii. slope of macd 7 strength of trend
iii. divergenceGconvergence of macd and ma of macd
iv. rate of change of slope of macd
c. stochastics 95,5,5<
5. 6atterns
a. 3ocket , stochastic goes up, stays perched and entwined
b. 6ennants G flags
*omments from Jack Hershey
)onitor the Mry Kp volume of the stock using >!M data. 'ook at the daily chart for a period of si? months.
'ook at the volume of the stock prior to the last five times it has gone up 10 to /0 ; over a few days time.
3ecord that daily volume to two significant figures 9roughly determine it<. atch the stock approach that
volume as the days pass. #otice that every day it continues in MK it is getting closer to breaking out in
volume and then, later, breaking out in price.
hen the day comes that the stock volume begins to rise in the morning, note if it reaches the dry up 9MK<
volume within two hours of the opening price. (f it does place the stop order or watch the price rise to that
point and go in with a )arket order. MonIt try to get it cheaper...get it when it has started the trend to best
eliminate risk.
&ell the stock. !nce you own the stock keep track of the volume at hourly intervals each day. %s long as the
stock has sold more shares per hour than the day before, keep the stock. 'ook at the last five times the stock
has done this in the last si? months. )ake a note of how many days it takes to go up in price and how many
days it takes for the volume to not again e?ceed the previous days volume. -he two numbers you get will be
consecutive numbers. -he price number of days will be one day greater than the volume number of days. (f
you sell the stock on the smaller day you will make twice as much money per year than if you sell on the
longer number assuming you are in the market much of the time this way. -he numbers you will be using
are around D to E usually. 3aise stops daily. (t works like getting a pay check periodically.
MR) 5G/G0/
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