MarketTamer | by Gregg Harris
Posted on April 6th, 2015
Being consistently successful in trading typically requires a lot of work. Sometimes you get lucky, and in extreme bull markets we all look like geniuses. But most of the time it takes a lot of work. While I’ve written a lot of software over the years to generate high probability trade candidates, I still often end up with 5 to 10 good candidates and I have to narrow the list down further. I can spend up to an hour per trade candidate to finally come up with a trade setup I’ll publish in my newsletter.
For example, over the November 22nd, 2014 weekend, after spending about 8 hours looking over my seasonal scans and checking charts and fundamentals, I came up with the stock that had the most going for it – Brinker International (EAT), the owner of restaurant chains like Chili’s Grill & Bar. The stock looked ready to break above early 2014 highs.
What led me to consider Brinker’s stock to begin with was the impressive seasonal pattern. I stated“The seasonal pattern of EAT for this time of year shows a strong track record of gains over the next 4 to 6 months. Notice that over the past 17 years, during the next 22 weeks EAT has had only one losing year.”
So in Monday’s newsletter (11/24/2014), I gave this trade setup:
The stock opened at 54.38 but quickly rose above 55.50, so the trade was triggered.
I covered how the trade initially worked out in the January 5th, 2015 MarketTamer blog posting titled Another Seasonal Trade Comes Through. But up to this point, the trade was successful only on paper. If not managed properly, it could still end up with a loss.
The stock position quickly gained 13% over 3 months. But since then, EAT has settled into a sideways range.
This may only be a consolidation phase. EAT may eventually break out on the upside for further gains. But there were 3 things that bothered me. First was the mere fact the stock had changed character. A brief consolidation would be normal. But this was now going into 3 months.
The next thing that bothered me was news came out that their same-store sales increases were below many competitors. Their polish was starting to wear off.
Finally, Brinker is due to announce earnings on April 21st, before the open. Brinker is one of those stocks that often reacts sharply to earnings announcements.
These may just be minor factors, and with a strong stock they may be meaningless. But with the first quarter earnings seasonal about to start, and rising speculation that there may be many disappointments in the results, I felt it wasn’t worth giving back any profit we had already made. I can always re-enter a position in the stock once the earnings-season smoke clears.
So in last Monday’s newsletter I told readers that I was closing the EAT position at the open. The stock gave us a nice 9.4% return (actually 10.5% return because we received two dividend payments while in the position).
Now I can consider it a successful trade because the profit is booked. But until I closed the trade, I had to continually re-evaluate the trade to see if the original conditions had changed, or if there is an upcoming event that could change the reward-to-risk setup of the trade.
So it’s not just doing the work to get into a trade, it’s doing the work to stay in or exit it with good cause to make sure it gets booked as ‘another success’.
Of course, there’s much more you need to know and many more stocks you can capitalize upon each and every day. To find out more, please click on the following link:www.markettamer.com/seasonal
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