Results trades - and reverses

[tomorton]

A fun established short-term trading strategy for shares is to get in on the back of price action on results day (R). If price is up at the Close, go long, using breach of the previous day's Close (R-1) as the immediate stop (vice versa if price is down), moving stop to break-even or better asap. This is not new.

However, I suggest as an extension to this, if stopped out of a long, go short at first Close below R-1(vice versa for shorts).

This treats R price action as significant root of (possibly new) trend, but additionally R-1 Close as significant S/R.

e.g. 1 - HSBC: R is 03/08, Close at 635.90p, +30.15p on R-1, so go long, with R-1 Close, 31/07 at 605.75p, as stop. Potential best gain to date = to 733.80p, +97.90p (+15.3%).

e.g. 2 - BP: R is 28/07, Close at 503.00p, -16.00p on R-1, so go short, with R-1 Close, 27/07 at 519.00p, as stop. Assume stopped out at 519.00p on 11/08 (3.1% loss). But R-1 Close 519.00p exceeded by Close 21/08 at 527.80p, so go long 21/08 at 527.80p. Best potential gain to date = 568.50-527.80p = +40.70p (+7.7%).

Interested in people's thoughts on this - looks good in eyeball-only backwards check of charts, now to put some money in!

 

[tomorton]

In fact, maybe the reverse on R-1 Close would work even if not stopped out, allowing two profitable swipes at same target.

 

[tomorton]

Initial check back on FTSE100 over last 6 months -

94 results announcements occurred, with price moving sufficient to designate trade win/lose (3-4 recent trades only would still be running, unresolved)

32/44 long signals went immediately to 5% profit or better (72%)

6 of remaining 12 longs went to 5% profit or better if reverse direction was taken on first close above the close preceding results day (aggregating to 86%)

20/50 went immediately to 5% profit or better (40%)

21 of remaining 30 shorts went to 5% profit or better if reverse direction was taken on first close below the close preceding results day (aggregating to 82%)


Clearly, taking a trade in line with the main market trend (up over the last 6 months) gives a good success rate. The R/R ratio is very good on these trades, 5% being target reward, with risk at about one day's range (if the range is extraordinary, more than 5%, as happens on some results releases, just let the trade go). Of course, there is no need to get out at the 5% gain.

But if you take a counter-trend position and reverse if it does not work, gains still likely to be worthwhile.

The key is taking the hit quickly.

 

[barjon]

interesting, Tom, I 've always closed out positions prior to results and this looks it might be a runner for re-entry when there's favourable continuation. I'll have a look.

Thanks.

Good trading

jon

 

[tomorton]

I definitely look to be out prior to results, R-day can be wild.

 

[tomorton]

FTSE350 results due tomorrow - Bellway, Whitbread.

 

[tomorton]

Shorting Bellway at 794.0, -11.5 on previous close.

Didn't play Whitbread - the quotes I was seeing into the close were +1,2 or 3p or down to -1p. EOD charts though are clearer and suggest this was a long at 1296.0p, +6.0p, though the candlestick looks bad. Range made an 18mth high.

 

[ianp]

Shorting Bellway at 794.0, -11.5 on previous close.

Didn't play Whitbread - the quotes I was seeing into the close were +1,2 or 3p or down to -1p. EOD charts though are clearer and suggest this was a long at 1296.0p, +6.0p, though the candlestick looks bad. Range made an 18mth high.

Hi Tom,

Thanks for the excellent thread, have you looked at any other markets or just the Ftse100.

On my chart I have Whitbread closing lower than it opened would that not have been a short ?

cheers
Ian

 

[tomorton]

Hi ianp - thanks for your post.

Whitbread did indeed fall from the open, but I am taking direction from action from previous Close. Sorry if I did't make that clear. The Close is the price that everybody in the market for these shares has had a vote on - many players will not participate during early trading, as spreads are wide and the Open price can be just a quote, not an actual traded level. Also, if you look at different charts, you will often see they show different Open prices, but they always agree on the Close.

I intend to look back over the FTSE250 as well as the 100, but not further into the smallcaps - the system under development demands that you can go either short or long on the same share, and my SB accounts only allow this through the FTSE350.

Still holding short on Bellway, though in the red - I have used the high of R-2 09/10, to give me the stop on this, as R-1 12/10 had a range inside R-day's. So stop would be breach of 828.5, then reversing into long on this one at any Close above 828.5 (including the day of being stopped out): I don't yet see the TA indicating a time limit for the reverse option but if the Close above that level did not appear for another 6 weeks, I suppose I might find I am fully committed elsewhere by then and just have to let it go.

 

[tomorton]

Missed Connaught this week - Preliminary Results out 13/10, closed at 435.5 (+8.6). continued higher today, + another 8.5p.

Also missed today (due to other commitments) Brown (N), up 3.6p, and Punch Taverns, down 19.2 (16%!) - this one must surely go further?

 

[ianp]

Hi Tom,

You explained your methods fine, I should engage brain before typing !!!

Do you look at interim results as well or just full year ?

cheers
Ian

 

[tomorton]

Interim and full year - but I am finding Sharescope also flags things like quarterly results and trading updates - these may be significant but I haven't looked into them yet.

I suppose if this system works for the largecaps, it would work for all shares, on all markets - that's the dream anyway....., as well as finding a system that works in all phases of the overall market.

 

[tomorton]

Long WH Smith today.

Short Mothercare today (though this only quarterly trading update).

Bellway survives, still short.

 

[tomorton]

Bellway stopped out, and reversed into long.

 

[tomorton]

Bellway abandoned.

Long Home Retail Group tonight at 308.1p. Stop any Close below yesterday's Low, 301.9. Going for Close below Stop level now, not just intra-day breach, so as to avoid being stopped due volatility. Looking for +5% or better on the upside from usual performances on Results so decent r/r.

 

[tomorton]

Short Stobart and Debenhams.

 

[tomorton]

Update (delayed) on this week so far - stopped out of longs W H Smith and Home Retail Group, and short Stobarts. Nice profit on short Debenhams (just over 5% net in 4 days), short Mothercare still running and in the money at 4% net.

No FTSE350 results flagged up today in Sharescope, as usual for Fridays. Next week should be more active, with at least a dozen FTSE350 results expected plus trading / quarterly updates.

 

[tomorton]

Update (delayed) - stopped out of Stobarts short, trailing stop on Mothercare hit this morning for acceptable profit.

Short Associated Brit Foods from 03/11.

Results today from M&S and FirstGroup.

 

[tomorton]

Long M&S, FirstGroup.
Short tonight on BTG, Cable & Wireless, Vedanta and Invensys.