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Jack Dreyfus Setup

Wednesday, December 7, 2011 14:00

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Jack Dreyfus Setup

Jack Dreyfus is considered as one of the most successful mutual fund manager of his time. The Dreyfus Fund returned 604 percent from 1953 to 1964, compared with 346 percent for the Dow index during the same period. When he ran the fund, he beat the next best fund by 102 percentage points.

He bought all his stocks based on market action, and only when the price broke to new highs off sound chart patterns on high volume.

His setup idea was similar to Livermore or Darvas. Buy stocks near high not low and buy after a sideways move near high.

When asked why he bought stocks near 52 week high he replied: “I just saw the patterns. The same things happened over and over again.”

He was always looking for momentum stocks. He summarized his philosophy as: “If you’ve got an escalator that’s going up, you’re better of betting on an individual on that escalator than on an individual on an escalator that’s going down.”

William O’Neil, was an avid student of Dreyfus when he was young. He used to study the quarterly reports of the Dreyfus fund and examine how the stocks were purchased. He would mark the new positions the fund made during the quarter in red ink on the price charts in order to see if there were any hidden buying strategies of the fund.

After looking into the purchases of Dreyfus for several years, O’Neil had a stunning discovery that all stocks were purchased at new highs, i.e. if a stock had been trading between $20 and $25, then Dreyfus would have bought it when the price broke into a new high at about $25.5. In addition, O’Neil also found that almost all the stocks bought by the fund had strong increases in their quarterly earnings reports. By following this strategy, Dreyfus was conquering every one of his competitors who followed a “traditional” approach of fundamental analysis and “buy low, sell high”. It is clear that Dreyfus had a simple belief: he only wanted to buy strong stocks with momentum.

How did Dreyfus found the pattern. By empirical observation. It is the pattern which shows up again in all big movers.

Dreyfus started his trading career with 20000 loan, he retired trading as a billionaire.

And what was his setup idea ?

Reproduced from the Stockbee members site. On the members site there is more extensive discussion on these setups and how to set them up in Telechart.

Related:

Learn the language of setups

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