Dan Zanger is a stock market legend from the late 1990’s. He holds a world record for achieving the highest percentage increase over a 12-month period for investments in a personal portfolio. Practically speaking, he took a $10,000 stake and multiplied it to $42 million – an outstanding 29,333% increase once fully audited.
Dan Zanger’s foray into the successful trading and buying of stocks came after a crushing loss.
Based in Florida, Zanger blew his inheritance on the stock market before refining his buying technique around inclusion of momentum stocks in the midst of rapid growth. Zanger purchased these stocks as they demonstrated bullish chart patterns and sold them the moment they showed signs of faltering. His techniques for generating returns were simple, utilizing charts to show volume action and price.
His success did not end with the tech bubble; in Google trades, Zanger’s profit totaled more than $20 million. Even as he’s feeling the challenge of the market’s current conditions, like most other traders, he’s committed to using his experience to help other traders achieve success.
For investors looking to find their own success buying stocks on Nasdaq, summarized here are the highlights of Zanger’s interview with Ben Power of “Your Trading Edge” where more details of success stories were revealed.
1. Zanger bounced back from devastating loss to turn $10,000 into $42 million by adopting more disciplined rules and a swing style for trading.
After his loss – the collapse of Long Term Capital Management in 1998 – and the subsequent market correction, Zanger adopted a swing style in his trading which fit with the market’s bullish momentum after recovery. As a result, his money constantly multiplied. He had one or two stocks at the time where he was all-in, such as Amazon or Yahoo!, and he was holding each stock on a 2-1 margin. His momentous success lasted nearly 20 months.
2. Zanger learned which stocks to buy or sell largely from his failures.
A valuable lesson Zanger passes onto other investors is this: “When stocks don’t act right, or start acting funny, get out!” He learned, through painful failures, the stock market is not set up to make money for traders; only to take it. Therefore, discipline and performing due diligence is a survival skill. His preferred method over focusing on a stock’s story is studying chart patterns and technical action.
3. Zanger’s strategy for selecting stocks to watch is all about investing in high-powered movers.
For example, Zanger prefers to pay attention to stocks which moved up $10 in a matter of two or three weeks over stocks with attractive chart patterns.
In his words, his strategy involves “looking for the stock to give me a set-up that creates a bullish pattern: consolidation, high channel, retracement work, descending channel, falling wedge, etc. As the stock begins to reaccelerate and break out of those high-level bullish patterns, I then buy. I also look for extreme volume: 200 to 300 or 400 percent increases. When the big institutions move the stock, I want to go with them. After it rises $20 to $30, the stock will begin to decelerate and I’ll begin to peel out of my position.”
4. His favorite stocks to invest in are those in a bull flag pattern.
The stock pattern goes like this: a pole is created from 4-5 days of sharp upward movement; the stock tapers, then falls, after which it engages in minor retracement work, ultimately creating a flag (or falling channel).
5. Zanger employs basic indicators when assessing stocks to invest in.
His only stock assessment indicators are a stock’s price action and how capable the stock is in responding to volume.
6. He pays attention to fundamentals and marketplace trends when buying stocks.
In his words, “I have a 40/40 rule: I like stocks with earnings up to 40 percent and revenues up 40 percent for the quarter.”
7. Zanger tends not to hold onto trades for very long.
When the current market is volatile, he says holding onto trades beyond 2-3 weeks is difficult.
8. Zanger adjusts his style of buying stocks based on what the market is offering.
How long you hold onto a stock, he said, is based on awareness of what the market gives you. He describes it as a game investors must learn to play with ever-changing rules. Flexibility and astuteness are key to keeping up.
9. In a bear market, he stays away from short selling Nasdaq stocks.
Zanger feels shorting stocks, while occasionally profitable, is not a successful strategy in general. Better to follow the big stocks moving fast and sit on the sidelines, more or less, when the market is in a bearish pattern.
10. When his Nasdaq stocks are moving down, Zanger opts out.
Typically, Zanger will sell or reduce his stake 30-60% the first day a stock is down or when the stock displays the first sign of erratic, choppy behavior. He prefers to avoid involvement with downward moving stocks altogether.
11. Zanger accepts big gains do not happen without big risk when buying or selling stocks.
The market is a risky place, Zanger says, and it is more vicious and brutal than most investors realize. To be a successful investor, you have to do the math and establish firm mental stops (and stick with them).
12. Zanger buys more stocks in a stronger, bullish market.
In general, he tends not to keep many stocks to watch at a time, ideally, 6 or 7 (unless the market is a new, particularly strong bull market). He values diversification so as not to invest too heavily in one stock and reduces shares once the market turns downward.
13. Zanger sees what others tend to overlook when considering stocks to invest in.
Google is his classic example, owing he made $20 million on this stock. While most traders at the time criticized Google for being overpriced and expensive, Zanger felt it was more under-priced than he’d seen before. Earnings and revenue were up significantly and it was trading at half of its growth rate at the time. The rest, for Zanger, is history.
14. He has a consistent, daily routine for watching, trading, selling and buying stocks online.
As long as the market is open, Zanger is at his computer. Once the market closes, he puts in an additional three hours for homework. Five or six hours on weekend days also consist of homework.
15. Zanger encourages traders looking for stocks to invest in to take advantage of good reading materials.
According to Zanger, “the greatest book of all time” for investors is How to Make Money in Stocks, by William O’Neil. He has read and reread selected chapters 30-35 times in a period of six years and the entire book no less than 10 times. This process of rereading, he said, is necessary for reprogramming the brain.
16. The biggest mistake investors make is believing in a stock.
Never put your belief in a stock, Zanger warns. Closely related, never believe you are immune to getting hurt and never believe in a stock’s comeback. All these mentalities, Zanger says, require reprogramming.
Zanger’s keys for success in buying stocks are straightforward.
Zanger encourages investors to choose a chart program proven effective, download it each night and study for chart patterns. He steers investors toward the Encyclopedia of Chart Patterns, by Thomas Bulkowski, as an invaluable resource. He’s a firm believer in having a plan in place for stops and never owning a stock for less than what you initially paid for it. In short, “learn the ability to say, ‘that’s it – I’m out.’ ”