I have got a real treat for you today. Joshua Hayes, aka MauiTrader, was gracious enough to answer some questions I had about his trading. Joshua runs BigWaveTrading.com and has been trading for a living since he was 18. Lastly, I will be making comments throughout the interview that will be in italics. Enjoy!
How would you describe your trading system?
My methodology is a combination of CANSLIM investing (top investing strategy according to AAII that William O’Neil started) and momentum investing. The momentum comes on both ends. In up-trends like what we are in now, since 3/10/09, I will go long the strongest stocks with the best chart setups for long-term gains (cup w/handles, double bottoms, base on base, flat bases, saucer baises, flag patterns, etc.).
At the same time, in down-trending, bearish market conditions I will short the stocks that ran up the most in the previous uptrend. When they breakdown at the correct moment, that is normally around the second to fifth time of testing the 50/200 day moving average areas, I will look to go short.
The most important rule in this system is to cut losses very small on your biggest positions. in tiny positions you can give them more room as CANSLIM methodology does not apply to non-CANSLIM speculative stocks.
What is the most valuable characteristic of your trading system/chart setup?
Correct and sound chart patterns like the typical most recognizable above. If a very tight pattern can setup with low volume in the base and heavy volume on the right side of the base on the uptrend and on the breakout and we are in a confirmed market rally like we have been from March to April 2009 so far, we can usually look at trying to make 20% in the first two to three weeks then get that up to anywhere from 50% to 100% in a few months at minimum.
If investors want to see my best looking and biggest past big winners, you can do that by going to BigWaveTrading.com and checking out the free “Past Big Winners.” What you will find in there are the most important characteristics that I look for, visually.
How has your trading system changed, if any, ever since the economic downturn?
None on the short side as we still rode stocks down over 90% like CEDC and CETV like I normally do on the bear market side. However, what changed was that I took a lot more cut loss hits than during any other down-trend. You would think that you would make more money on the short side in 2008 than in 2000, 2001, or early 2002 but that was not the case as volatility was extremely high and not only did a lot of what turned out to be good short setups fail and hit me with cut losses but a lot of my best short gains gave on to three partial covers along the way to minimize my full gains on my shorts. Also, for the first time in a very long time I had more losers for small cut losses than stocks that worked for big wins. Example from 2/23/09 on website: top shorts with TOTAL RETURNS making me money TODAY: MOS 58% GGB 67% SPG 61% CEDC 84% POT 52% CYT
70% MCY 32% APD 48% TITN 57% CASY 29% FSYS 15% IPHS 50% CETV 92% AMX 53% OKE 47% PRGO 28% SDA 80% AAPL 45% RIMM 62% CINF 15% LLL 23% BOH 24% RDK 32% PG 23% CPRT 24% WRB 16% ARB 72% PLCE 30% CEO 32%
On the long side, what I was having to do until just recently when I finally started to get some beautiful green to max green BOP filled charts with heavy accumulation with some proper tight bases was take profits around the 20%, 25%, 33%, 50%, 66%, and if I was lucky anywhere from 75% to 100%. While those returns were rare, we were at least able to get some nice winners in 2008 like PDO, DGLY, AIPC, and ANCI. 2008, however, was “the worst year” ever for longs.
It wasn’t my bad picks, it was a bad market that did not even offer one stock up 500% for the full and only offered up 21 stocks up 100% for the year. I am not sure how I am supposed to get my usual bull market 300% returns in one to three months on a stock like TASR of a remarkable 2,390% in only eight months and three weeks. To see my normal returns in a bull market, please go to BigWaveTrading.com and go to the longs section and click on “Past Big Winners.” This will show you what I look for when I am trying to go long the next big winner. The big winners that did not exist in 2008.
I noticed that on your telechart, you keep your price very small compared to most charts. What is you reasoning for such a setup?
Here is an image of the chart that Joshua has up on his site for your reference:
I can clearly see the bases in the price patterns and can read it better than any other pro that I personally know. I can not believe I am the only one that does it but look at all the rest of the “pros” and none have small price charts. No wonder none of them can hold for the huge returns that someone like me, my subscribers, or those employed at William O’Neil do.
Every single one of my subscribers that “tightens” up their price chart tell me they can see the cup, saucer, double bottom, whatever base it is much more clearly once they do this. I used to never be able to tell the difference between a “loose” price pattern and a “tight” price pattern, but now I can tell immediately.
I do “open up” the charts by making them wide, tall, short, and thin. I do this by using the shift and (-) and (+) keys. I also jump back and forth between arithmetic and logarithmic scales to get a much fuller and complete picture of the stock instead of just one view. This means looking at 60 mins, daily, weekly, and monthly charts too.
Is it an advantage or disadvantage to be located in Maui?
For me, right now, the major advantage is I do all of my work afterhours between the close and open of the bell. So if the bell rights at 10AM, that means I have until 3:30AM to get all my work done. When the daylight shifts, the market closes at 11AM and opens at 4:30AM. So as you can see I have all noon, afternoon, evening, and late-night to do my work. However, the taxes I pay on Maui and the cost of living have now killed the joy of living here. If I was making 1998, 1999, 2003, or even 2004 money every year, then yes I would stay here longer. But with the situation going on in the USA, the way they go after those that champion free markets and believe that the government should be completely out of our lives is very scary. Since those that live on Hawaii want to take advantage of those that earn the income to be spent at places on Hawaii that put money in the pockets of other families.
Well, even though I love my hours I have on Maui, the fact that they love to tax me and give me no love is the reason I will hopefully be out of here soon enough. if you read interviews with me two years ago, you can see moving from Maui was a “never going to happen” issue for me. Sadly the USA is a “complacent and dependent” country where it seems more people would rather ask for handouts and bailouts than work hard. I love my job, I love looking at green charts all day, I love then exploring the fundamental side of these stocks, and then make a living being right on my analysis.
With socialism growing, the worthless dollar goes even less than what I make right now and still have the exact same standard of living. Surfing, the sun, and all fun used to be worth it, but then the automatic huge money from nice charts started to dwindle as the economy slowed and now stretching that dollar, owning a nice sized house instead of an apartment and starting a family in the future sounds more important. Plus I’m getting a lot of offers to run money and believe living on Maui will not allow people the proper access they deserve. So, basically it is about growing and to grow in this business and to help as many as I want to help I am going to have to make a move. However, for now, it is still ‘Maui no ka oi’ (The Best!).
About how long did it take you to get to a level where you could make consistent profits?
I got lucky. I started in 1996 and subsequently bought three different Investing curriculum. The first thing I bought was the book ‘Investing for Dummies.’ that was my first introduction to the markets. Obviously, that book left me needing more. Next, I chose an online class by a company I don’t want to promote here because I think their work is horrible for investors (good for executives only) and by the end of this online class I had high marks and appeared to have a knack for what I was learning. However it was still early and even though I was investing in lame stocks like Proctor, Coke, and Pepsi, I was making a little money but definitely not a lot. Basically, it was just luck to even have a profit the first year in 1996 as I was clueless. I just started lucky.
However, before 1996 was out my father mentioned a newspaper he said his mom talked about before dying. The name of that paper was called Investors Daily. The subscription to the paper came with the book ‘How To Make Money In Stocks‘ and I was off! I went on a mission buying every CANSLIM breakout. I was reckless as any breakout as long as the stock was CANSLIM was good for me. This however, due to the market we were having, turned out to work great and I returned a very good size amount after 1997, but noticed I still was missing a lot of big movers and not holding on for all the gains. As 1998 rolled along I read more books And more books, studied IBD through and through, but then made my next most important discovery which were the nice chart patterns.
When going through The past I saw IOM’s 1995-1996 chart and saw that the stock moved from a bounce/breakout off the 50 day moving average of around $5 (I think the stock based around $4 to $6 and I can’t remember if splits happened) to $135 by may 1996. So in only a year this “hot, max-green BOP filled, with huge accumulation, and excellent price action with perfect support off the key moving averages was able to run, depending on where you got it on the breakout/bounce day or before, a whopping 2,600% to 4,400% in one year.
Well that got me excited because I now saw a clear pattern with the bases, volume, and BOP and soon realized that I could buy CANSLIM stocks with nice patterns and speculative stocks with “hot to perfect” patterns and make really good money. But I still did not know how to fully sell at the top or sell before the stock gave up its gains. By 1999, after seeing many stocks come and go and top from 1996 to 1999 I got the selling down pat!
By the time the final runs in technology, biotech, internet, software, hardware, and business-to-business stocks were over, I was selling almost all of them either at or near the top by using the ‘How to Sell Stocks’ (here is what I could find about this) rules created by Investors Business Daily. Trust me, what I have learned from that period to the period now is that the stock market is the most important factor in making gains. When the market is moving up rapidly, you can literally make a career in one year with gains over 1,000% if you use margin correctly. In the rough years like 2008, you must keep your cash levels high and keep your cut loss areas close by or else you will be waving aloha to your money.
What single piece of advice would you give to personal investors as we all fight to find and keep profits?
That is easy for me and I am sure that Investors Business Daily’s William O’Neil would say the same thing: cut all your losses very short. Every long or short I take always has a final cut loss very close by the area where I take my position. For high-skilled investors, since we normally go long/short near a key 21/50/200 day moving average, we make sure that if our long/short does not make us money immediately that we are right there to cut our losses short.
Now if you are a new investor, just like IBD says you must cut all your losses at 5% to 8%. I am a big proponent of new investors cutting almost all losses quickly before they hit the 8% level. No matter what though, new investors should only be investing and doing this with CANSLIM stocks. I see too many new investors come out swinging away at stocks that trade at $2 a share and have EPS & RS ratings well below 70 making these stocks non-CANSLIM stocks. Not only are these cheap stocks speculative and scary, but if you are cutting your loss at 8% in a stock that moves 25% intraday every day, you obviously have a logistical problem in your trading.
Still if you stick to the best, obey the rules of CANSLIM, and cut your losses short, in time you can and will gain complete financial independence from all the talking heads on Wall Street.
Once again, I want to thank Joshua for taking the time to share some insight into his methods and give some advice to the people that are hungry for success. Please comment with any questions or thoughts!