Long term success in a dealing room, and in trading and investing outside that environment as well, depends on many things. Perhaps the most important is avoiding the big, blow-out loss, or at least minimizing the risk of that occurrence. That is why I am not generally a fan of running a short term stock position through earnings releases. Any big surprise in the numbers or untoward comment in an ensuing press conference or conference call can initiate a big move with a huge gap in liquidity. That negates any sensible precautions taken to control risk through stop losses and leaves you with an unenviable decision to make…cut for a big loss or hold on and hope.
The volatility around earnings season, though, equates to enormous opportunity.
The challenge, therefore, is how can you take advantage of that without risking long term success? The answer lies in trading the market’s expectations for earnings, rather than the earning’s themselves. Sentiment around a stock will often be the same going into numbers repeatedly, regardless of past results. Solar City (SCTY) would be a good example.
The company is probably best known as part of the Elon Musk Empire. Musk, the man behind Tesla (TSLA) and SpaceX and the co-founder of PayPal is Chairman of the company, which is America’s leading provider of solar power systems to individual and commercial customers. Now it so happens that I believe that that position makes SCTY a good long term investment,…