people

Famous for making $42 million in 23 months, Dan Zanger continues to be one
of the most successful traders of his generation. But it hasn’t all been plain sailing,
with the recent bear market, in particular, causing the pro-trader more than a few
worries. On one occasion in October 2000, he lost 32% of his funds in one day.
Zanger’s spirit, however, is one that cannot be beat, and he bounced back from the
experience stronger and wiser. As he says himself, persistence is what sets him
apart from the rest of the crowd.
Zanger’s trading style is very specific. A momentum trader with a bias towards
swingtrading, he goes for the same stocks and trades as the big institutions, and
steers well clear of options. He swears by chart patterns and volume, but avoids
indicators like the plague. If a stock doesn’t accelerate quickly, he sells it immediately.
If it takes off straight away, he knows he’s “in for a ride”. It’s a strategy that seems to
pay off. On his biggest single day in the market, he netted $5.2 million.
Here, he speaks frankly to TRADERS’ about the
secrets of his success, his unparalleled drive,
and, of course, that famous $42 million win.

76 TRADERS´ November / December 2003

 www.traders-mag.com

TRADERS´: Can you tell us about your background – before of the day – KWHY TV Channel 22. The show had a ticker tape
you started trading? at the bottom of the screen, and I was fascinated with it. Half an
ZANGER: I grew up in the San Fernando Valley – a major Los hour after the market closed, a gentleman named Gene Morgan
Angeles suburb. Just as I started college, I got ski bum fever and presented his show – Charting the Market. He used to manually
hitchhiked with a pair of skis to Mammoth Mountain, California. mark up charts of stocks and the market and show stuff like
I lived there for about two years. I then moved to Hawaii for parabolic curves, flags, pennants, cup and handle patterns and
a summer and then to Steamboat Springs, Colorado, for a winter. others. He’d show what the stocks did after they left these patterns.
I was tossed off that mountain for habitual high-speed skiing and I was astounded that charts and various patterns could foretell
then found my way to Sun Valley, Idaho, where I finished the price movement, and also tell when a market move or stock move
season. I did a few odd jobs, such as bell hop, cab driver and had expired. One day, I was watching and a stock exploded across
prep cook, to support myself. the tape at $1, so I made my first purchase. I then sold the stock a
I then moved back to LA with no education and no professional few weeks later at just over $3. From that moment forth, I was
trade, so I started working for a landscaping company. In a few hooked.
years, I got my contractor’s license and ventured into pool
building, where I stayed for 20 years, building exotic pools for TRADERS´: What were your next steps after this rewarding
the rich and famous in Beverly Hills. However, all the time I was experience? Did you start reading books or did you attend
building pools I always kept track of the stock market, as it was seminars?
my passion. In fact, for many years while I was en route to jobs, ZANGER: Believe it or not, it never occurred to me to read any
I’d listen to Quoteck on the radio for real-time live quotes on my books that might have existed at the time. Remember, back in the
stocks. I’d make trades by mobile phone as I was driving around. 1970s and 1980s there were no websites or search engines to
browse, or anyone to correspond with about the markets. I just
TRADERS´: What enticed you into trading? read the stock quote page of the daily newspaper and looked for
ZANGER: I used to visit my mother on a regular basis in the stocks that appeared cheap. I was captivated by tape reading
mid-1970s. She always used to watch the only business channel because I could see which stocks were moving that day and try to
trade a few. I didn’t make any further gains until I got serious and
decided to cough up some dough to pay for a seminar led by
F1) ICGE William O’Neil from the Investors’ Business Daily newspaper.
This was a major turning point in my ability to select winning
This chart shows continual stair stepping as the stock took stocks. At a few seminars in 1989, I learned some additional
off from $30 a share to over $400 a share. Each crossing
pointers from Charting the Market presenter, Gene Morgan.
of the trend line was a buy point.
A year or so after that, I read Technical Anaylsis of Stock Trends
Internet Capital Group (Daily) by Edwards and McGee and Reminiscences of a Stock Operator
384 by Jeese Livermore, considered to be one of the greatest trading
320 books of all time. It’s so easy to read and understand it’s a wonder
this book hasn’t been read by more people. My style of trading
256 closely resembles that of Livermore.
192
TRADERS´: Were you successful right from the beginning?
ZANGER: Well, it takes years to understand the charts and back
128 in the late 1970s and early 1980s there were no computers with
chart programs to download. I had to look for these things in a
chart book. I would buy this at the weekend, in addition to trying
to understand some fundamentals. I couldn’t find cup and hand-
le, pennant or flag patterns at that time. It really takes years of
64
work to be able to identify these things correctly. It wasn’t until
1989 that I got my first computer. I installed AIQ Trading Expert
Sep. Oct. Nov. Dec. 00
and started flicking through charts by the hundreds. Then I started

TRADERS´ 77
to buy stocks on the move. I was doing pretty well until I ran into TRADERS´: What kind of trader are you?
my first market correction and got my head handed to me. What ZANGER: I’m a momentum trader with a bias towards
the heck is a correction anyway? Ouch! What a way to learn, by swingtrading. All of my trades are based on chart patterns, volume
the seat of your pants. and stock behaviour.

TRADERS´: Rumour has it that you turned $11,000 into $42 TRADERS´: How long are your typical trades?
million in a matter of a few years. Is it true? How could this ZANGER: Some are as short as 20 minutes. These are the ones
happen? Please tell all. with no power, as they usually come out of bases and are sold
ZANGER: Yes, it’s true. In fact, it took only 23 months, lots of right away. Some of my trades last as long as 10 weeks. Most
hard work, patience and perseverance. It is very hard to believe trades in today’s market are about 6-12 days long.
and I wouldn’t have told anyone about it, if a subscriber to my
www.chartpattern.com newsletter (The Zanger Report) hadn’t TRADERS´: What programs do you run during market hours?
made millions of dollars using my stock recommendations. A ZANGER: I run 4-5 monitors with quote screens, such as eSignal
couple of years ago, a journalist from Fortune contacted CPAs to and Mytrack. I also run LIVEWIRE, which is a fast DOS-based
ask them if they knew of anyone who had made large gains during program offering hundreds of charts in real-time all at the touch
the market bubble for an article they were researching for the of a button. In addition, I use a position monitor on which I can
magazine’s December 2000 issue. A CPA referred the journalist see my gains or losses in real-time. Finally, I use AIQ’s daily
to my friend. While they were discussing his portfolio charts, and download updates every hour or so to see what’s setting
performance, he told them that they really needed to talk to me, up during the day.
as my gains were astronomical. They contacted me immediately.
I found myself hesitant at first to discuss my story. However, I TRADERS´: No Level 2?
felt that this story had to be told, as I knew it could inspire so ZANGER: No, I can’t watch 40 or 50 stocks closely on Level 2,
many others. It would have eaten me up inside for years if I hadn’t. so I don’t use it at all.
At any rate, I turned $10,775 into $2.6 million in 12 months
and that grew into $18 million in just 18 months and subsequently TRADERS´: Are you a systematic trader?
into $42 million in 23 months. The first 12 months was verified by ZANGER: Yes, I would say so. I buy the same types of stocks
Effron, which specialises in managed-money auditing for the mu- with the same types of price action, out of the same types of bases
tual fund, pension and managed account industries. Fortune furt- on a continuous basis.
her verified the 18 month period of June 1, 1998 to December 31,
1999 for the first $18 TRADERS´: Where does
million. I’ve yet to audit up discretion come in?
until April 2000, so you’ll ZANGER: If stocks start to
just have to believe me on fail on their breakouts, I’ll pass
that one. on buying those stocks at that
The period from time. The market is sending a
January 1, 2000 to the end It took me more than clear signal that a correction is
of May 2000 was a rather six years of studying upon us and it’s time to go to
feeble performance, as my cash and/or look for shorts.
portfolio went up by just charts at least 30 Also, if the price action isn’t
120% to $42 million, even hours a week before what I like, I’ll pass on that
though the NASDAQ was stock, even if it’s coming out
up another 70% or so. It was it all came together. of an attractive pattern.
my weakest period within
the bubble cycle. I found TRADERS´: How would you
myself extremely cautious summarise your basic trading
at this time, as I knew the approach?
NASDAQ was going ZANGER: Basically, I own
parabolic and I was concerned about a vicious market break that what the big institutions want to own and go when they go. I’m
could have happened at any time. As a result, I played it low key always scanning to buy leading high-beta stocks coming out of
and somewhat conservative. well-defined patterns.

TRADERS´: Do you think you would be able to duplicate that TRADERS´: Did you play options at all during this run, and if
performance now? so, how?
ZANGER: Yes, I believe I could, especially if another market ZANGER: I didn’t start making money on stocks until I quit
bubble similar to the last one came around again. playing options. The only options I do now are selling a few naked

78 TRADERS´ November / December 2003

 to account for such a discount. The stock opened for trading and
F2) Ash Jeeves just sat there for half an hour until people started to realise that it
was an unannounced 2 for 1 stock split. Who in the world has
This chart shows a very bullish Flag pattern. My buy point ever heard of that? Anyway, the stock started to run hard and
is triggered when the stock leaves the pattern and moves
moved its way back to $100 by midday. Hell did I get lucky on
above the trend line.
that one. I sold out my position by the end of the day and thanked
Ask Jeeves Inc (Daily) 192 my lucky stars.
Another big winner for me was Amazon. I swingtraded it
160 from $136 to pre-3 for 1 spilt $600 in six weeks. I also bought
128 CMGI two days before it split 2 for 1 for $118 and sold it the day
of the split at post-split prices of $136 or pre-split $272 for a
96 gain of close to $150 on each share in just two days.
I made a hefty chunk with Knight Trading Group as it lifted
off its base around $56 and ran to $136 in just 10 days. Other
64 major winners were Qualcomm, from $256 to just a tad under
$800. Then there were so many others it’s impossible to list them
all here. Remember, stocks were popping $10-25 a day back then.

TRADERS´: Those were amazing times indeed. Do you ever

32 work with indicators or just with chart patterns?
ZANGER: I only work with volume and chart patterns, no
Oct. Nov. Dec. 00 indicators whatsoever. They look pretty on the charts, but for the
most part are very ineffective for my use. This is especially true
in powerful markets that are up or down.
calls. I sold a bunch of naked calls on CMGI in April 1999 for
$33 each, and a month later I covered them for $1. I did the same TRADERS´: Does volume play a role in your trading approach?
with Doubleclick and SDLI. SDLI broke support one day, so I ZANGER: Volume is everything. No stock can make a move up
sold a ton of those calls only to see JDS Uniphase make a buyout without volume. The greater the volume, the better the potential
bid for SDLI. Consequently, SDLI ran up over 80 points on me move.
during the next few weeks. I covered some of the calls and bought
more than enough stock to cover the rest. It was a wild, feverish TRADERS´: Can you explain one or two of your typical set-ups?
run for this stock. However, I ended up losing a few hundred ZANGER: One of the most well-known chart patterns is the cup
thousand dollars on the deal. Those were the only options I traded and handle. A number of the big winners I traded during the bubble
in that run. run had just emerged out of this pattern. Amazon.com came out
of a cup and handle pattern around $137 and made its way up to
TRADERS´: So the rest of your money came just from trading $600 within six weeks.
stocks? Another example was a new issue Internet Capital Group.
ZANGER: Yes, on margin of course. This stock started trading around $30 a share in August 1999,
and after a week of horizontal rest started to move up aggressively.
TRADERS´: What were some of those stocks and trades? I couldn’t believe my eyes considering that this was a very slow
ZANGER: There were so many of them in that two-year period time of the year and not much else was on the move. After a small
it’s impossible to remember all of them. It had to have been at horizontal set-up of about five days at $40 a share, the stock hit
least 200 trades or more. I was in and out of Inktomi twice in one new highs and I bought a ton of it as it hit this new high. It quickly
day before jumping in at the end of the day just as the stock leaped moved to around $60, where I sold all of my position. After a
$12 to close the day at $58. The next day it opened at $64 and two-week rest, a small descending trendline appeared on top of
raced up to $90 in the first hour of trading. I sold the stock at $86 this solid pattern. I was watched this stock constantly, as it was
in a few hours. acting very friskily. One day the stock moved sharply over my
Doubleclick left a basing area at $100 and ran to over $300 descending trendline, where I again re-initiated a position.
in about five weeks pre-split. I was only in this stock for about It popped almost $20 in two days before going into a longer
half of this run. In one stock, whose name eludes me (and probably horizontal base that lasted five weeks. I quickly sold the stock
isn’t around anymore), I had about 50,000 shares at $120 a share. when I detected that the upside action was over on this quick
One morning I got up and looked at the opening bid and it was move. I bought this stock once again as it vaulted out of its five-
half of what it was the day before. I just about dropped to the week, tight horizontal base, this time running from $108 a share
floor, as I thought the stock was gapping down. I called my broker to close to $200 a share in nine trading days. To my astonishment,
and he said there was no bad news or news of a 2 for 1 stock split this stock consolidated again. This time creating a high-level

TRADERS´ 79
symmetrical triangle for four weeks, during which it once again, hard to make money in a stock that’s not going anywhere. And
and for the last time, blasted off and ran from $180 to over $400 of course, if a stock is heading south then I’m out even quicker.
a share in a parabolic blow off top that lasted 11 days. Sadly for Remember my motto: the only good stock is a stock going up.
me, I wasn’t in this stock on its final run. Sadly for Internet Capital
Group, it was the end of this stock. It now trades for less than TRADERS´: How much of your equity do you risk per trade?
half a dollar a share. ZANGER: It depends on the strength of the overall market and
which stocks, if any, are proving to be the true powerhouses. If I
TRADERS´: How do you test your trading ideas? can find a few stocks with huge earnings growth that are under-
ZANGER: Well, I haven’t seen any new types of set-ups on the owned and have a large new market niche, such as Yahoo did
charts to test. I’ve done all the testing I’m going to do, unless a during the bubble, then I would consider up to 15% of my equity
new pattern emerges to try. Remember, I use only chart patterns in that stock at a 2 to 1 margin.
combined with daily volume and price action to enter and exit At the beginning of my big run, I would only own one stock at
trades. I use absolutely nothing else. a time at 2 to 1 margin and swingtrade that one stock up from 2-
5 days and then move on to the next one. (Swingtrading entails
TRADERS´: How often do you look for set-ups? buying a stock as it breaks out of a base and runs strong for 2-5
ZANGER: I never stop looking for set-ups. Once or twice a day I days. If the stock runs strong, I will own it for 2-5 days only.) As
manually scan about 1,500 stocks on my AIQ chart program and time goes on, I increase my allocation, owning two stocks at a
look for interesting behaviour. I thought I was scanning only 400 time. I stay at two stocks until I go over the $500,000 dollars
stocks until I counted them recently. This takes me about an hour. portfolio benchmark. I then branch out to owning three stocks. I
pretty much stay with three stocks until I go over $4 million in
TRADERS´: How many different set-ups do you use for trading? cash value. When I get to about $20 million, I have 7-8 stocks. At
ZANGER: I’ve never really counted, but I guess it would be the peak of a run, I own about 12 stocks at any given time.
around 20 or so.
TRADERS´: How do you manage your open trades?
TRADERS´: With so much time scanning stocks manually, how ZANGER: I constantly add to or sell stocks as they move around.
do you find time to write your nightly newsletter? I sell all or part of my stock’s position as it moves up strongly and
ZANGER: Well, 12-hour days are nothing new for me. In addition then roll that money into new stocks as they come out of fresh
to the newsletter, I have to scan stocks for myself, too. patterns. As stocks move, so does my portfolio. If stocks don’t
move, neither does my portfolio. There’s no need to own stocks
TRADERS´: How do you manage your risk? when they, or the market, aren’t going higher. What’s the purpose
ZANGER: It depends on the market and where we are in a market of that? To say I’m an owner of a particular company because it’s
move. The further extended a good company does not apply
you are combined with time, to my rationale. There’s only
the more at risk you become. one reason you own a stock in
In this case, I start to peel your portfolio, and that is to
back stocks that are very make as much money as
steep in their angle of ascent I own what the big institutions want to possible.
and add a few more shares to
those just coming out of own and go when they go. I’m always TRADERS´: Do you use
sound bases. I will also start scanning to buy leading high-beta stocks trailing stops and profit targets?
looking for shorts and get ZANGER: I never use trailing
prepared to go into cash and coming out of well-defined patterns. stops, but I will sell a position
add shorts as fast as possible of strong stocks moving up
when the trend is broken. quickly or for long periods of
time. As far as profit targets go,
TRADERS´: How do you no one has a clue where a stock
determine when you are will ultimately go. Therefore, I
wrong in a trade? never have targets. I allow the
ZANGER: If a stock doesn’t stock by its own actions to put
accelerate quickly out of a basing area, then I’ll sell the stock me into the trade, and then once again by its actions to take me
promptly during that first day. I’ll do this even if I’ve been in this out of the trade.
stock for only 20 minutes, regardless of profit or loss at that time.
If a stock isn’t moving up sharply right away, then the trade must TRADERS´: In terms of executing trades, is that a subjective
be wrong. Why have my capital tied up in a stock that’s going process or do you do that mechanically?
nowhere when I can be in a stock that’s going up quickly? It’s ZANGER: I look at the stock and its behaviour as it nears a break-

80 TRADERS´ November / December 2003

out. You can see traders trying to nibble quietly so as to get as between $1-3 million. It was out of this world to see this happening
much of the stock before it goes. With some selected stocks, in real-time on the monitors. Making money like this never gets
especially ones with low volume, I try to go with them at this me excited though. I had lost control many times before thinking
point. You have to be careful though, as this can often go against this was nirvana, thinking I would wind up giving it all back.
you. Then, when the This re-programmed me to
explosion of volume comes never get excited or emotional
and the stock crosses the about making money and to this
breakout point, I will add to, day, I can keep very calm in
or initiate, a position in the volatile markets. In fact, people
stock if I haven’t purchased joke: “Dan, you must have ice
it yet. If the stock really blasts I only work with volume and chart patterns, in your veins not to get excited
off, then I back up the truck about the gains you made
no indicators whatsoever. They look pretty
and get as much stock as I today.” Never lose focus on the
can, because I know we’re on the charts, but for the most part are very market or the job of watching
going for a ride. Yee haw! stocks.
ineffective for my use.
TRADERS´: What is the TRADERS´: Any words about
ratio between your winning fear, greed and self-esteem?
and losing trades? ZANGER: Self-esteem is the
ZANGER: I have no idea, one thing that can make or
since I never count them. I do break you. There can be many
buy a lot of stocks coming out of bases, as you never know which deep-rooted feelings that affect you personally at any given time.
one will rocket up and which ones won’t. If the stock rockets up, If you have any self-destructive things that you’re not aware of,
then I know I have a winner. At that point, I’ll add to my positions you could potentially end up giving back all your gains on a
on that stock in a big way. This is where the big returns come in: consistent basis, as you feel you are not worth it or not good
concentration of money in the big movers and selling stocks that enough to have it so good. You have to want it. Fear and greed
fail to rocket out of their bases on the first day. are the emotions that make the market the big money making
machine that it is today. “Buy the fear” and “sell the greed” are
TRADERS´: What was your worst drawdown? two of the most important things to remember.
ZANGER: Most drawdowns are about 20% in normal market
corrections. Yet this long bear market really got to me and the TRADERS’: What do you think is the difference between you
drawdown was about 75%. Half of this was due to a one-day and so many other traders who have been kicked out of the game?
break in the Fiber Optics sector in October 2000 when NT pre- ZANGER: Persistence. I never give up. I never, ever give up. I
announced a shortfall in earnings. My portfolio dropped about realise that if I give up, I will never get any money back that I
32% for the day. It would’ve been much worse if I hadn’t been might lose. I always go back to the charts and stare at them for
allocated to a few other groups that day. hours, trying to figure out where and how I went wrong, and where
in that chart pattern or daily bars could have foretold that this
TRADERS´: You are kidding? When you lost 75% of your funds stock or market was going to crack before it did. In time, with
didn’t you want to stop trading? enough persistence and desire, things will start to appear that can
ZANGER: At times I wanted to stop and sometimes I did, for a often predict a break on a stock or market. It took me more than
brief duration. However, my mantra has always been, “never stop six years of studying charts at least 30 hours a week before it all
watching the market,” and I never have. came together. You’ll find it much easier to find a stock to purchase
rather than ultimately being able to predict its potential break
TRADERS´: Did this bad experience make you a better trader? through charting. Don’t ever give up.
ZANGER: A better trader no, a wiser trader yes. Next time a
major bear market comes around, I’m heading to Maui and I’ll TRADERS´: So when you’re not trading, how do you enjoy your
stay there until the next bull market arrives. free time?
ZANGER: I love to play golf, racquetball and tennis. I enjoy my
TRADERS´: What was your biggest upday? new yacht and collecting California Cabernet and French
ZANGER: My biggest day in the market was a day after the Burgundy. I’m a pretty good cook, but I still love going to fancy
NASDAQ topped and sank to around 3,200. I covered my shorts restaurants.
at that point and went long on a considerable amount of shares. TRADERS´
Then a news story hit the wires and the next day the NASDAQ
soared over 200 points. I netted about $5.2 million that day. In
fact, there were many days during 2000 when I could net anywhere

TRADERS´ 81