Aug. 14 at 2:29 PM
$COHR $LITE $SPY $DIA $QQQ
WHY I DO WHAT I DO - A TALE OF TWO STOCKS
The post explains what I do what I do personally. Notably, I trade for a living and if I don't consistently make money, my wife will throw me out of our house.
Please note, my trading objectives and strategies might not be the same as other people's given, as I have said many times, there is no "one size fits all" strategy. You need to develop your own strategy based on your own objectives, risk tolerances, etc.
WHAT DID YOU DO DON?
As I posted at the end of last week, I secured large profits I have made over the last four months starting on April 9th when Trump paused the tariffs. At that time, the overall market seemed oversold to me and I went aggressively long and was even on margin. I did that because I believed the line of lease resistance in the markets was higher based on the existing dynamics.
Fast forward to last week. I posted last Friday how I locked in a the vast majority of my profits (I was up over 200% since April) and moved to a much more cash heavy position. As I stated when I made that post, I had no idea EXACTLY what the market was going to do. I was simply playing the percentages given I am in this vocation for the long term and that means putting a high value on my existing capital. Said another way, if I lose my capital (my "inventory" if you will) then it would be 'game over' for me.
The reason I made that move was that I felt the dynamics had changed and many of the stocks that I PERSONALLY trade seemed to have a best case scenario price in and the risk/reward profile had shifted.
TWO STOCKS I SOLD
In this post I wanted to share the justification for such a move based on this week's performance of two stocks I sold that reported earnings. I made a LOT of money on these two stocks prior to earnings and know there is ALWAYS heightened risk in a binary event like earnings...especially after stocks have made nice runs.
The two stocks are LITE and COHR.
You can look at the charts and see what I am talking about. Look at the moves from April to August. I was able to take advantage of the vast majority of those moves. However, given their massive runs and what I felt was also a somewhat exuberant overall market, I decided it was time to mitigate some risk. I actually sold my entire position in both stocks last week.
Now, as I stated when I made that move, I knew it was possible I might be leaving some meat on the bone. However, as I have been trying to explain to everyone, I consistently try to play the odds. Therefore, I felt that, given where the stocks were already trading, the upside was somewhat limited and the downside was much greater if either company projected any hiccup in their growth trajectory.
SO....WHAT HAPPENED DON?
LITE reported earnings with the proverbial 'beat and raise.' The stock popped about 7% initially after-hours Tuesday. I could hear the trolls in my head laughing at me saying "Ah ha, you missed out on 7% upside." However, the stock lost it's AH gain and closed flat in the after-market. Then, the stock popped again on yesterday's open but once again gave up the ghost and closed the day up 0.48%. At the time of this post, it is down 4.21% as the market takes some risk off from the PPI numbers.
COHR reported yesterday after the close and they experienced the hiccup I mentioned above. What did the stock do? It is down 21.7% at the time of this post.
You see, as I suspected, the market had already factored in positive earnings for both companies (the reason they had ALREADY run so much). That is why LITE did almost nothing after their beat and raise and COHR got hammered for a slight miss.
WHAT DOES ALL THIS MEAN?
I am not trying to say I am some genius or that what I do is what everyone should do. Again, Lord knows I am often wrong.
However, what I am trying to say is that I have developed a system designed to consistently lock in profits and mitigate the risk of large losses. It is what prevents my wife from kicking me out of the house.
Although you don't have the same system I have, PLEASE, PLEASE, PLEASE develop a system that works for you and stick to the rules of that system. Trust me, as a guy who is ALWAYS trying to put the odds in his favor, having a system with rules will dramatically increase your probabilities of success if you trade for a living like I do.
Btw, below is a link to a video where Kenny Glick @HitTheBidRadio and I discuss these things in more detail. We will be filming our next episode this weekend for those interested in learning more:
https://www.youtube.com/watch?v=JO-5g4R6HA0
