How to Make +200% ROI
Profit.ly is a trading education website where nearly 150,000 traders have taken advantage of a supportive community and professional mentoring. The site is owned and operated by well-known penny stock trader Timothy Sykes, and it was through his teachings where I developed my trading strategy.
I was browsing through the recent user-generated content on the website, and it is evident to me that there are very few people trading earnings winners. This trend is understandable, given the fact that it’s a secondary strategy for Sykes. Less than 25% of his 275 trades this year have been earnings winners, and he only made about 12.5% ($20.5k) out of his 158% gains YTD through buying these stocks.
Based on my observations over the last five years as a subscriber of his services, I must say he is a master day trader, and scalps earnings winners better than anyone I’ve ever seen. This strategy is an incredibly difficult practice to replicate (at least for me), so while I got the idea of trading earnings winners from Tim, I do not follow the same approach in trading earnings plays. It simply does not work for my personality or my schedule.
Obviously, everyone is different, and 100% replication is not a practical purpose of any strategy. All of Tim’s top students trade variations of the strategies he teaches, and I am no different. Just because I suck at day trading morning spikes or dips, doesn’t mean there isn’t huge money to be made on earnings winners as a whole.
Because I work full time, I prefer to swing trade earnings winners. I trade part-time, taking about 30 minutes out of each day to scan, watch and manage my positions. Earnings winners provide an excellent opportunity for those who have full-time commitments like me, because the best time to buy is never on the first day of the reaction, and the best time to sell is rarely on the same day I open a trade.
This approach allows me to search for new earnings winners every night, and plan out my trades days in advance. There is no stress associated with frantically searching for hot stocks every day, watching every print that comes through, or attempting to be faster than everyone else at entering my order.
The patterns I trade take days or weeks to develop and follow through, and by the time the setup is obvious to most traders, I already have gains locked in. This tactic makes my risk of shakeouts and false breakouts extremely limited, and I can passively manage my positions with trailing or mental stops.
Do I have a crystal ball? Certainly not, but I have studied earnings winners longer and more thoroughly than anyone I’ve encountered, and this gives me a huge advantage. So how exactly did I find myself in the third quarter sitting on +200% gains YTD? There are many factors such as money management, opportunity cost, pattern recognition, emotional intelligence, discipline, psychological fortitude, etc., but the short answer is risk management.
I don’t trade scared like Tim has been known to preach, but I do make my trades based on how much I could lose. Experience tells me that most earnings winners that are showing a favorable long setup tend to follow through, so as long as I properly manage my risk, the gains will follow. I mostly trade setups that are obvious to most momentum traders, like ascending triangle or range breakouts, because this drives a lot of demand for a particular stock.
The active day traders help to push through a key breakout level, while passive investors like to buy and hold based on recent earnings. These habits generate great swing trade opportunities for those who pay attention and buy before the crowd. I’ve mostly traded this setup, waiting for an earnings winner to show signs of an imminent secondary breakout, and riding the continuation as those passive investors continue buying.
Why would I stress about finding pre-market winners to scalp for 10-20 cents when I could simply ride a continuation trend for several dollars? Here are a few charts from recent trades to help visualize the effect.