Profits Without Gambling: Chartered Market Technician’s Trading Strategy
My son, 8 years old, is a bit of a trash-talker.
He always wants to make something competitive, even a simple shot in basketball.
“Give me $10 if I make it from here?” he told me with a hint of arrogance.
I said “sure,” and when he made it, I paid up. But I always try to teach him lessons from our fun times. And the lesson today was to never gamble, even if you think you have the upper hand.
Profits Without Gambling
So I got him into a “double or nothing” for the next shot, and he saw how quickly gambling can lose his money.
We engrain the negatives of gambling into our kids at an early age, yet when we are old enough to make financial decisions, gambling becomes an alternative many of us look to.
It could be illegal gambling, or an addiction to rolling the dice at a casino. But in the stock market, gambling can be even more painful.
Perhaps the most gambled event in the stock market is an earnings announcement. I don’t disagree that it’s a significant event, but I have discovered a different, more profitable way to profit from the event without gambling…
The Best Way to Trade an Earnings Announcement
Many investors think the surefire path to significant, “quick hit” gains is gambling on an earnings announcement.
To be fair, there is enormous potential in tapping into the jumps we see tied to an earnings announcement, but I haven’t seen anyone figure out how to get it right consistently.
That’s why I studied another way to generate similar rapid-fire gains that were still tied to an earnings announcement — but without betting on the announcement itself.
To do this, I studied every earnings announcement from an S&P 500 company, going back to 2006. That’s over 10 years of earnings analysis to culminate what would end up being the best way to trade an earnings announcement.
And I found a strategy that raked in returns of 100% in just five days, 63% in three days and even 52% in just four hours.
But, I’ll be honest, I initially wanted to find the silver lining to jumping in before earnings. And after countless man-hours and costly data feeds to analyze the information, I came to the conclusion there wasn’t a way — at least not for now.
Any bet on a stock prior to earnings is just that, a bet. You are gambling at that point because of all the different outcomes.
For example, even if you could accurately predict — and this is a long shot — that the company would beat estimates in both earnings and revenues, and that the CEO would tout a strong current quarter based on sales, there are still other items to consider.
Like shrinking margins, a major executive departure, or overall negative market sentiment that helps diminish the stock’s reaction.
With all these factors playing a part in such a short time frame, any guess on how the stock reacts is nothing short of gambling in the stock market.
And, as I taught my 8-year-old, you never want to gamble.
Here’s how we trade earnings instead…
The Three P’s
I use a strategy I call the “Three P’s.”
It helps me tap into the enormous potential a stock still has after the company has announced earnings.
Even entering a position after earnings have been announced, we still managed to rack up returns of 148% in just one week, 299% in eight days and 101% in just eight days.
And my “Three P’s” were critical to this success. Let’s go through them now.
The first P is the “profit trigger.” This helps me determine if the earnings announcement created a large enough move in the stock.
The second P is the “profit pattern.” This is where my decades’ worth of research comes in. I cross-examine each stock that meets my profit trigger with its historical pattern to make sure it has at least a 75% chance of delivering a huge profit. This is critical to stacking the odds in our favor and not gambling on the earnings announcement.
Our last P is the “profit window.”
I utilize techniques I learned as a Chartered Market Technician to pinpoint exactly when the ideal time to enter and exit the trade is.
This helps complete my “Three P’s” and deliver a proven strategy that generates similar “quick hit” gains as if we were betting on earnings. Yet, we are making a much more calculated trade to generate these returns without gambling in the stock market.
Chad Shoop, CMT
Editor, Automatic Profits Alert