Guest blog by our new “novice robbie burns” – Chris Chillingworth

Why earnings season kicked my butt and then fixed me again

It’s been a mad few weeks recently with many of the US stocks I held delivering their earnings results. All of my stocks made profits of course, but it’s not about making profits. It’s about whether those profits reflected what the market was expecting to see. As a result half of my positions failed to meet expectations and half outperformed expectations.

These results had both a negative and positive impact on my book. I had positions falling and rising all over the place, and I went through emotional states of uncertainty, panic, stress as well as joy and relief.

These earnings also co-incided with an upcoming presidential election (due tonight) which also caused uncertainty in the market.

I’ll be honest, there were times when I thought maybe I should close up shop and come back when things calmed down. However, then I remembered. Haven’t I been through an earnings season before? I’ve been spreadbetting for something like 18 months now. Why then is this the first earnings season that i’ve taken notice of and gone through all these emotions for?

The answer was that previously I hadn’t known about earnings season. I hadn’t been following the news. I was a technical trader simply following price moves. I HAD been through Q1, Q2, Q3 and Q4 earnings results before, however in the past they had just been those days when the price moved around a lot. As a trend trader I use rather wide stops with small bet sizes, sometimes 400 points away from the price, with the view that over a long period of time it’ll make me good money, especially if it trends and goes on for years.

I had been so caught up on the news, that I had allowed myself to get sucked into these emotions. I wanted to get in, I wanted to get out, I was all over the place not knowing what to do next, but the underlying fact remains. Out of my entire book, only 2 of my stocks hit their stops as a result of all these moves, one for a small profit, one for a small loss. The rest have returned to their trending ways and continued on their path.

Then another thing struck me. Looking at the charts I realised that when taking a long term view (lets say daily chart over 3 years) I found it distinctly difficult, almost impossible to notice any significant changes in any established trends during these earnings periods. Sure, the prices moved everyday. And sure there were some big moves, but there were also big moves on day where there were no earnings being released.

Bottom line was, I was getting myself into a hissy fit over absolutely nothing.

If I hadn’t known about earnings season I would have just seen prices movements for a few days followed by things going back to normal.

The whole experience served to re-inforce to me that I don’t need to know about whats causing the price to move. Many traders swear by having market knowledge, but I think this is more important to those trying to predict moves. If you read this blog you’ll know I’m a price follower, I don’t predict or try to predict anything. So what influences a price to move has much less bearing on me, and going forward I’ll aim for it to have no bearing at all. I’ll treat it as a moment of weakness on my part. Like when you know you should be at the gym but you go home instead and have a slice of the cake your wife has baked……mmmmm…..Caaaake.

Going forward i’ve made some radical changes to assist my trading style. I’ve stopped following the twitter feeds that feed me with daily news leading me to want to act upon them when the price has done nothing to suggest making any changes. I’ve stopped watching Bloomberg. I’ve also stopped reading the FT (that’s saved me £2.50 a day alone so i’m making more money already).

I’ve always understood that I shouldn’t make decisions based on the news, but i’ve tried to keep in tune with the news regardless. This has really only served to distract me from what I should be doing which is only acting if the price tells me to. I’m rather confident this is all a positive change. It’s about learning from your mistakes and fine tuning your style. It’s not for everyone, but i’m pretty certain it’s going to help me.