Adrian Manz explains how he developed the eight trading patterns he uses each day to find money-making trades.

My guest today is Adrian Manz, and we're talking about the patterns he uses to trade and a stable of patterns that he goes to during the trading day.  So, Adrian, I know a lot of traders are looking for the hot thing to trade that day, or that month, or that year.  You've got a set book of patterns that are reliable, that you go to.  How did you develop those?

I got to thinking about how markets work, and came around to markets are cyclical, and everyone knows markets move through cycles and phases within those cycles, and then try to figure out how do you find what phase we're currently in and how that represents the psychology of the people who are pushing and pulling on the market, and essentially I came up with eight patterns. 

The core of the whole thing is an expansion and range and volume that I look for as the thrust of the cycle, and then from that I just look for things that move naturally through the progression of other patterns, so you'll move from the expansion and range and volume, then the next thing you're looking for is a pause, I call it an in-field fly pattern, followed by a pullback, I call that one a switch-hitter type setup, or a 3-2 pitch setup, as well, and then you just follow the market as it makes a cyclical move over and over and over again, and rather than going and trying to figure out a way to trade the same stock every day, try to figure out a way to trade Dominion Resources (D) or something every single day, I just leave it alone. 

When it's out of the cycle, when it's in a consolidation range, or an accumulation phase or something, I just step away from it, move on to the next thing, look for the next stocks that are making moves.

All right, so you have a pattern for each market environment that you like to pull from?

Right.  So, I look at what the broader market's doing, then I drill down into the sectors and see what each individual sector is doing, and once I've got that backdrop against my trading plan, I'll go and try to find stocks within those sectors that are doing what the broader market is doing and what the sector is doing, and then also happen to be engaged in one of these patterns that I look for.

And how long did it take you to come up with eight that you say, "These are my stable of patterns that I don't have to go outside of; one of these patterns will handle any market environment for me"?

I started trading professionally in 1998, and I would say in 2000, 2001, was where I really had everything developed.  In 2003 I did the book about the patterns, and they really came to be more because I started like everyone else did, the market was flying, so you could just hop on the momentum, and when I saw that wrapping up, I thought if I want to stay in business, I better figure out what else is going on here, and how we can find real opportunities that represent something other than piling on.

Do you automate these patterns so that your computers scan for them, or is it all discretionary?

I plan every trade.  I don't scan for them.  There's a lot of scanning software out there that is dedicated to finding my patterns, but I still do it the way I did ten years ago.  I've got about 1,500 charts that I just flip through quickly at the end of the day.  It takes me maybe an hour to flip through the charts. 

I find stocks that are set up, and I go back, compare them to their sectors, find the ones that I want to use, and then really I drill down to a five-minute chart, start drawing lines, figure out where support and resistance is, set it up for the next day, there's nothing discretionary about it.  We just come in and pretty much automate trading of them ourselves.

And I know you get faster and faster at doing that, but how long does it take you to do your homework at night?

My homework every night is probably about three hours.

So, it's significant.  It's a significant amount of time.

Right, but you're ready for the morning when it starts, and ready to go. And I don't like to think too much first thing in the morning, so really it takes a load off of us to have everything pre-planned and ready to go.  It just makes it a very pleasant experience compared to what was a very stressful experience otherwise.