In the world of day trading we like to say that earnings season is our “playoffs”.  It only occurs four times per year and is a time where trading opportunities abound.  The most difficult thing during earnings season for traders is remaining focused on their best ideas and not attempting to bite off more than they can chew.  If a trader is on top of her game during earnings season she can easily make enough money to live on for an entire year in a single month.

After earnings season concludes there are fewer intraday opportunities and many traders grow frustrated trying to make money on a daily basis.  This is not the case for me.  During the past several years I have had excellent results in the calendar month that immediately precedes the start of the  quarterly earnings’ reports.

On the flip side I have had sub-par results during earnings season.  In fact, in 2008 I only had one very good month out of the four prime time earnings months of January, April, July, and October.  October was my best month of the four but I believe a large part of my success that month was related to the abnormal volatility as the market was spiraling downward.  July was a very good trading month for our firm overall but not for me individually.

I believe it is very important to try to understand the reasons why I performed above average in what are usually considered inferior trading months and performed below average in the “better” months.  This type of analysis will hopefully lead to me further exploiting my “edge” (if one exists) this month which is a non earnings month.  It may also illuminate on how I can improve upon my performance next month when the second quarter earnings numbers are released.

I think a large part of my success in the slower months has been my ability to identify stocks that are trading well and exploiting their movement for several successive days.  How am I locating these stocks?  One,  each weekend I review hundreds of charts to get a sense of which stocks may be poised to make significant moves in the coming days.  I set price alerts at key levels that serve as guideposts as to whether the stock is beginning a larger longer term move.  Two, I keep my ears open on the trading desk.  When someone calls out a very strong or weak stock I type it up.  If it is making a large intraday move on unusual volume it is then on my watchlist for the next several days.  Three,  I pay close attention to premarket risers/fallers.  I look at their longer term charts to see if I recognize a pattern that may lead to a sustained move beyond this one day.

The second part of this blog will be posted on Tuesday and will examine how I believe I can best capitalize on my strengths during the slower months.  I will examine an individual trade from last week and offer some insight on how the play could have been executed far more efficiently.   And finally I will discuss the issues related to underperformance during earnings season and how I plan on addressing these issues prior to July.

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