Trading With The Market Trend
By Ultimate Trading
How A Market Trend Can Influence Earnings & Split Runs
The markets contain hundreds of kinds of market trend. If you can
identify and trade with a
you will greatly increase your trading profits. If you cant
identify them, and end up trading against the market trend, you are
equally likely to lose a great deal of money. It makes sense to
learn about the different kinds of market trend. A market trend is a
pattern of price movements that are repeated by different financial
vehicles (stocks, bonds, commodities, currencies, etc) in response
to human actions within the market. As long as humans are acting on
the market, a market trend will be the most effective means of
reasonably predicting the price movements of stocks and similar
Market trend trading is the best way to find good trades in any
market. A particularly strong market trend that you might want to
consider working with is the earnings market trend. When a company
is expected to have good earnings, its stock usually begins to rise
in price. This starts about two weeks before the earnings
announcement is scheduled to take place. A stock's price can go up
50%, 100%, or even more, in anticipation of a good earnings report.
Of course, if a company gives an earnings warning, its stock may not
be as good a candidate for the earnings-run play. In the right
market environment, though, the earnings trend may work in spite of
In my opinion, the only way to trade an earnings market trend is to
sell the stock before the earnings announcement. Generally, holding
a stock through its earnings announcement is a losing strategy.
Stocks often drop sharply immediately after earnings are announced,
even if the report is good, because the good news was fully priced
into the stock before the announcement. Remember: buy on rumour, but
sell on news.
A market trend
can occasionally continue to climb after earnings reports, but if
you were to consistently hold trades past the reports, you'd lose
more money than youd make. And your losses would be large, because
most companies make earnings announcements either after the market
closes or before the market opens. Which means that a market trend
can plummet in pre-market trading, leaving you with no way to cut
your losses. I recommend selling early because stocks sometimes
start to sell off toward the end of the last day before the earnings
Always remember that your goal is to take control of your money.
Never leave it in a market trend over which you have no control.
Since you have absolutely no control over the earnings report a
company will give, you should never hold past the earnings
Another strong and lasting market trend to play is based on stock
splits. Often the stock of a company that has announced a stock
split will run up until the split's ex-date. This is the day the
stock's share price changes to reflect the stock split and revised
numbers of shares are credited to shareholders' accounts. Though the
real value of a company is not literally enhanced by a stock split,
stocks that are about to split will typically outperform the market.
Although this market trend often begins ten days to two weeks before
the stock's ex-date, it's a good idea to wait for the stock to start
to ramp up before entering a position. The run-up will generally
continue into the ex-date and sometimes for a day or two beyond it.
Analyzing how other stocks that have recently split trended into
their splits will give you some key indicators of how to trade the
current split market trend. As always, use protective and trailing
stops. That way, if the market turns against you or the stock isn't
ready to run, you can always trade out with a small loss and then
trade back in later if the situation warrants.
You can find information on upcoming and past splits on the splits
calendars at Web sites like TrendFund.com or Yahoo! Finance. Bear in
mind that Yahoo!'s accuracy has been known to vary. Although splits
calendars give a number of dates, the ex-date is the only important
When choosing stocks to trade for splits, make sure the split ratio
is at least two shares for one. Generally, a larger ratio, such as
three for one or even four for one, indicates a stronger split
run-up. Splits in ratios such as three for two don't have large
price movements heading into their splits. And never trade with a
that's doing a reverse split, such as one for four. Reverse splits
are usually desperate attempts by failing companies to bolster their
dwindling stock prices, and are not a promising market trend
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