A Trader's Trick: Stocks With Earnings Often Snap Back to Unchanged.

HILTON

The strategy involves identifying stocks that pull up on earnings news and then reverting to unchanged levels. The key is to wait for the first down tick after the pull-up to initiate a short, with the backstop at the high. This approach leverages the tendency of stocks to waffle down instead of up after a pull-up, providing a defined risk and potential reward. The backstop at the high acts as a safety net, and the trade is exited when the stock reverts to unchanged levels. The risk is limited to the difference between the entry price and the backstop, while the reward is the potential profit from the pull-up and subsequent decline.

Hilton

The speaker identified Hilton as a potential trade opportunity due to its alignment with the 50 moving average and resistance levels. The structure of the chart suggested a potential reversal, making it a favorable risk-reward opportunity. The trade idea is based on the Stewie pattern, which provides a structured approach to identify potential bottoms in the market.

Reverting to Unchanged Strategy

The strategy involves identifying stocks that pull up on earnings news and then reverting to unchanged levels. The key is to wait for the first down tick after the pull-up to initiate a short, with the backstop at the high. This approach leverages the tendency of stocks to waffle down instead of up after a pull-up, providing a defined risk and potential reward.

Using Stewie Patterns for Trading Confidence

The Stewie pattern, an inverse head and shoulders formation, provides a structured approach to identify potential bottoms in the market. This pattern gives traders confidence by offering a clear structure to work with, reducing the risk of catching a falling knife and allowing for more confident trade execution. The tighter the pattern, the tighter the stop, increasing the likelihood of successful trades.

What happens if you're wrong and the stock goes against you?

If the stock goes against you, you would give up on the trade. The speaker mentions that if the stock goes above the backstop, they would have given up, but in this case, it never went against them.

TakeawayIt's important to have a clear exit strategy and to be prepared to cut losses if the trade goes against you.

What criteria do you use for trading volatile names?

The speaker uses criteria such as earnings, market cap, and unusual option activity. They focus on stocks they are familiar with, like Marriotts, Hiltons, AMDs, and WDCs. They also consider pre-announced earnings and volatility plays, especially in stocks like IBM.

TakeawayFocus on familiar stocks with unusual option activity and consider pre-announced earnings for volatility plays.