Saturday, January 13, 2007

The overall trading strategy for the coming week

As I mentioned in the earlier posts, the technical significance of the NASDAQ break-out must not be overlooked. As the results, I will try to avoid the short-on-top setups, unless there are sound with multiple technical reasons backing up the calls. I will also use smaller than usual sizes for any short trades, DT or SW. On the other hand, due to the concerns and uncertainties about the Q1 outlook when major tech companies report Q4, I will refrain from chasing the break-outs for now. I will also avoid trading the stocks during the day before AH earning release. To minimize the RSK/RWD ratios, my emphasis will be on the long-at-bottom setups.

As the earning season comes in full force, I will also actively look for DT opportunities in stocks following their Q4 reports. My approach to the earning plays consists the following steps:

1. Closely monitor the immediate AH reactions to the earning report of a company. Such reactions are always extremely volatile and difficult to trade. In the past, I sometimes cannot resist the temptations to jump in, and often lost out due to the inability to deal with the volatility. I am resolved not to commit the same mistake this time around.

2. Watch closely the pre-market movement of that stock the next morning, the key to watch is the difference between the opening price of the morning at 8 am and closing price of yesterday's AH, and then wait for another 10-15 min to confirm the trend, and then take a position.

3. Close the position around 9 am, and prepare to re-enter around 10 AM when its overall direction becomes clear.

How do you play the earning reports?

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