introduction
Hello, fellow market enthusiasts! Today, I’m diving into a topic that might resonate with many of you: Earnings Dates. Those special days on the calendar can either make us cheer in triumph or ponder our choices.
Earnings Announcements: The Volatility Catalyst
Let’s get straight to the point: earnings announcements are primarily known for their ability to stir the market. They have this unique power to transform a calm trading environment into a scene filled with unpredictability and excitement.
My Strategy: Avoiding the Roller Coaster
Given the choice between experiencing a financial roller coaster and enjoying a more stable journey, I’ve opted for the latter. Why? Because while the thrill of the ride can be exhilarating, the peace of mind that comes with stability is invaluable. My approach has been simple: sidestep the volatility that often comes hand-in-hand with earnings announcements.
A Tale of a Trade: The GOOGL Story
Let’s look at a recent experience with Google (GOOGL) to illustrate this point:
- Date Opened: 19 Jan 2024
- Underlying Price at Open: 145.92
- Close Date: 29 Jan 2024
- Close Price: 153.48
- Position ROI: 3.78%
- Position Open Time: 10 days
The Setup
In mid-January, I entered a position in GOOGL, attracted by its solid foundation and the calm before the earnings storm. The stock was in a confirmed uptrend, and it seemed like a green flag for go.
The Decision
As the earnings date loomed closer, I found myself at a crossroads. My position was in the green, but not by a wide margin. Holding through earnings with a profit cushion less than 5% felt too much like gambling. So, I decided to sell.
The Outcome
This decision to sell before the earnings announcement turned out to be a prudent one. The stock did experience volatility post-earnings, which could have eroded my modest gains or even turned them into losses. This move underscored the importance of a disciplined exit strategy.
Lessons Learned
From this experience, several key lessons emerged:
- Timeliness Is Crucial: Setting up custom price alerts for early breakout signals is essential.
- Discipline in Selling: Mastering the art of disciplined selling, even when a stock is performing well, can safeguard profits and prevent losses.
- Navigating Volatility: Earnings announcements often bring volatility. Recognizing this and planning accordingly can help in making more informed decisions.
Extending the Strategy
This approach to trading around earnings dates is just one part of a broader investment strategy:
Portfolio Diversification
Diversifying investments across different sectors and timing exposures to market events like earnings helps mitigate the impact of any single event on the overall portfolio.
Continuous Learning
Each earnings season offers new lessons and opportunities for growth. Embracing continuous learning keeps trading exciting and enriches the trading experience.
details at a glance
opening
- Underlying: GOOGL
- Date: 19 Jan 2024
- Underlying Price: $145.92
- Stop Loss: $137.16
- Profit Target: $175.10
- Market Outlook: Confirmed uptrend
- RS Rating: 87
- Position Risk, %: 5.96%
- Position Risk to NL, %: 0.39%
- Potential Profit (Position), %: 19.86%
- Risk to Reward Ratio: 0.30
- Position Size, %: 6.60%
- Why Did I Open This Trade at That Point?: Stock was in the base. Price wasn’t very volatile.
- Was It an Ideal Buy?: No. Price was in the upper part of the base. Up volume wasn’t heavy in the base.
closing
- Date (Close): 29 Jan 2024
- Price (Close): $153.48
- Market Outlook (Close): Confirmed uptrend
- RS Rating (Close): 89
- RS Change: 2
- Remarks: I closed because the earnings date was 1 day away, and the profit cushion was less than 5%. I could hold through earnings when the profit cushion is at least 5%.
results
- Position ROI, %: 3.78%
- Position ROI (Portfolio), %: 0.25%
- Position Open Time (Trading Days): 6
- Position Open Time (Days): 10
- What Went Well?: Disciplined selling action. It was mentally challenging to sell a position that was slightly in profit, and there’s a probability for a gap up as a reaction to the earnings.
- Cause of Error / Improve: Again, I need to pay closer attention to the stocks that are in their earlier stages with their patterns. I need to buy those that haven’t started an uptrend yet. It’s kind of hard to do. I need to be quicker with buying stocks breaking out of a base. This one was also a little bit late. This means that I need to use custom-made price alerts as much as possible.
- Lessons Learned: I need to practice more disciplined selling WHILE the stock is in good shape. The sale before the earnings announcement turned out to be a good decision. But you will never know. All we know about earnings announcements is that most of the time, they add volatility. My strategy has been avoiding the volatility. This means that most of the time, I should avoid earnings announcements.
Closing Thoughts
Navigating the market, especially around earnings dates, involves balancing risk and reward. By choosing to avoid the volatility associated with these events, I’ve found a strategy that aligns with my goals for stability and growth. As we navigate the markets, let’s remember the importance of informed decisions, timely actions, and the continuous pursuit of knowledge. Here’s to making smart moves and enjoying the journey to financial success!
