'Tis the season and I'd first like to wish everyone a happy holiday season. To health, happiness and prosperity!
Feel free to sing along....
"We've made our (Chart)List
we've checked it twice
but we won't buy stocks
at any ole price
market makers will bring the price down"
That's the tune we hum every day at EarningsBeats.com and it's how we post our impressive results day in and day out. Here are the five principles that we live by:
1. Do Your Homework
Ok, well we'll do the homework for you. It starts with the understanding that trading stocks that have exceeded Wall Street's expectations is the first step towards improving your trading results. Seriously, would you want to buy a company that's been failing to meet their own projections and making excuses about how "we'll turn things around next quarter or next year" or perhaps is out looking to replace their CEO? Or would you feel better buying one that's just proven to Wall Street that their business plan is being executed to perfection and revenues and earnings are rising even faster than projections? Don't think too long on this one. Our first step is to identify those companies that have exceeded expectations in their latest quarter by reviewing thousands of earnings reports. But we don't stop there because some companies report stellar results and Wall Street doesn't care as their stock price spirals downward. We want the "1-2 punch" - great results and a technically sound chart. It limits our stock trading universe to a manageable number of stocks. That leads us to our next principle.
2. Establish a ChartList
The tools at StockCharts.com are excellent and include the ability to organize all of the stocks you like in a ChartList. We have one ChartList and we call it our Candidate Tracker. Every single trade that we make will be found in that one ChartList. No exceptions. We don't go outside our boundaries. We are not swayed by buyout rumors. We don't care about the political environment. We are on a mission and focused solely on those companies that are simply performing better than everyone else. You'll need to be a StockCharts member in order to establish a ChartList.
3. Stalk, Stalk, Stalk
They say patience is a virtue and we couldn't agree more. Consider this analogy. Imagine that you're an avid golfer and you're standing on the first tee, ready to rip that drive. Then your playing partner says, "Ummmmm, put away your driver, we want to save you for the 13th hole." It may not be a great analogy, but the feeling is probably similar. Many traders that have cash available in their accounts simply cannot wait to make that next trade. They have an itchy trigger finger and buy without giving it much of a thought. Change that process. Stalk your ChartList and wait, wait, wait. Then wait a little longer. Look at the charts and decide where a GREAT entry is. If it doesn't hit, DON'T BUY. Buy as close to support as possible and "support" can vary. It might be the rising 20 day moving average. It might be the trendline support. It could be a major price support. Perhaps it's the 50 day moving average. The point, though, is to buy as close to key support as possible to limit risk (principle #4)
4. Manage Your Risk
Let me be honest and straight forward. We will not provide you 40 winners in a row like many services might tout. That's not our expectation and it shouldn't be yours. In fact, our past 17 closed trades have resulted in a very modest 9 winners, while we've endured 8 losers. But here's the secret sauce. Our 9 winners have produced an average return of 8.13% over an average of 13 calendar days. Think about that for just a few seconds. At a time when banks pay you almost nothing to keep your money, we've returned an average of 8.13% on our winning trades and we've done it in less than two weeks. That can grow your capital quickly. But we won't ignore the 8 losers, we'll embrace them. Why? Because we make no excuses and losers solidify our discipline. It's as simple as that. When we identify a trade for our members, we expect that trade to work to our benefit immediately. That's our mantra. "Better timing. Better trades." If a stock goes against us and violates our tight stop policy, it's gone. Banished! And we move on. So let's talk about those 8 losers. We lost an average of 1.90% on those trades and our average holding period was 3 days. They either work or we put them out to pasture. Again, no excuses. Big losses kill trading results. You should have absolutely no patience when it comes to trades that aren't working. Use your capital elsewhere, right? Sure, some of those "losers" will turn around right after you get stopped out. But there'll be some that would turn into large losses and that's what we want to avoid so take the small losses and don't look back. The winners will more than offset them.
5. Do NOT Hold Stocks Into Earnings
Repeat Principle #4. How can you possibly manage risk by playing the earnings roulette wheel? Will your stock explode higher with a great quarter? That sure does feel good! But what if they miss or lower future guidance? Do you like waking up to a 20% financial haircut?
If you follow these five principles, I'm convinced you'll see much improved trading results.
Our ChartList, or Candidate Tracker, constantly evolves as companies are deleted as they approach their next earnings date....and then replaced by companies that recently reported stellar results. This past week we were able to take profits in a few companies that hit our targets and we were fortunate to have moved into energy stocks by week's end. Recently, we had ZERO energy stocks on our Candidate Tracker because few were reporting great quarterly results and even fewer had nice looking charts from a technical perspective. But stock market rotation has changed that. Energy stocks have begun to beat estimates and the recent profit taking allowed us to move into three energy stocks on our ChartList:
I am in a festive mood and I'd like to make a special offer to ChartWatchers readers. I want you to see how we operate and manage risk in real-time. If you'd like a special three week trial at EarningsBeats.com to include a copy of our ChartList, CLICK HERE. There is no further obligation beyond the three weeks and you can keep the ChartList as our holiday gift to you even if you decide that our service does not fit your trading style. In other words, we've done steps 1 and 2 ("Do Your Homework" and "Establish A ChartList") for you.
Wishing you a great holiday season and as always, at your service,
John Hopkins, President