How I Trade?
I mainly trade on earnings breakout. There are significant edge in trading earnings breakout.
When earnings are released, market usually will not adjust to the new information given immediately. It might take hours, days or months to reflect the new information. Stock price rises because of earnings and revenue growth. Of course many stocks rise different reasons, but the most profitable and easiest are big growth stocks. You can look at the research section for further understanding. Backtest speaks for itself and this edge is unlikely to fade away as long as markets are traded by human being. That’s why this site concentrates mainly on earnings related data and analysis. I am doing it daily anyway and I have a very organize way at looking at earnings release with different sources. There are no single reliable earnings source.
The second method I am exploring is swing trading, it requires much more time than trading earnings breakout and it is less profitable. But still given you have a proper list of stocks and learned to master the entry point, it is still a good method.
February 27, 2010 - 2:22 AM
Thanks for sharing this excellent web site. Would you be willing to share your thoughts on the proper entry point for swing trading? Also since the term swing trading has no specific definition, what are you thoughts regarding the duration of the trade and what trailing stop levels.
Thanks, Mash
March 1, 2010 - 7:16 PM
Hi Mash,
Thx for your comment. Regarding Swing trade, first of all I usually only focus on stocks that has the strongest relative strength, those are stocks that have the most chances of going up. On the entry point, most of the time I enter after a period of consolidation, I mostly only enter when the stock break-out, rather than anticipating it to breakout. I think it is important to enter after the stock has formed a good base, as the risk-reward ratio is higher, and it is easier to set the stop price. On duration, it is hard to generalize, but if the trade did not go up after 1-2 days after I enter, I will look to sell it. Personally I don’t like to hold losing trades. The important thins is to find good risk-reward set up. e.g. Stock is at $10, and if you set stop at $9.5, I would look at the trade to at least has a 2:1 reward-risk ratio, that means my target would be at least $11. Most traders would only be right half of the time, so it is important to have a higher profit% for winners than for losers%. I don’t use trailing stop.
I think a good list for swing trade is to use the earnings breakout list.
http://traderant.com/?page_id=98
Many of the stocks after a good earnings date won’t go straight up, some of them will consolidate first. So it is a good list to look for possible candidate.
Regards,
Ant
August 3, 2010 - 3:21 AM
Can you elaborate on your “backtest speaks for itself”.
As I am beginning to get familiar with your information I have begun some very basic backtests. I am limited within the constraints of my backtesting program though.
August 3, 2010 - 9:00 AM
Hi Jim,
I wrote that half years ago when I start the site and was planning to put up some back-test result, which eventually I decided not to.
The two thing you can test is performance of a stock if it has a big earnings growth or big surprise, which goes up on earnings day with high VaV. You might want to look up The Post Earnings Announcement Drift (PEAD) effect as the concept is quite similar of what I am doing.
For backtest software I use Wealth-lab and Portfolio123, but both of them are subscription base. I dont think there is any good free one out there.
Ant