themarketzone

The Risk of trading Earnings - Bullish signal turns to a loss

NYSE:YUM   YUM! BRANDS INC
Earnings are high risk binary events.

Many traders try to time major directional earnings moves by using technical analysis (me included).
Although it often works, it sometime can end up with an unpleasant loss.

Before $YUM's earnings , I sent to the Elite Zone members a setup suggesting that $YUM could reach 92$ and complete a bearish Bat pattern (potential aggressive C scenario).

This aggressive C scenario, started around 76$, got some confirmation signals earlier this week as the stock broke out of a daily downtrend line and closed above several important SMA lines (I use these confirmation signals all the time).

It turned out that $YUM crashed 18% following its reports, way below the stop loss zone (near 74$), violating my setup.

Few after thoughts and conclusions:
1. Re-analyzing the chart confirmed the bullish setup. Sometime you get everything right and yet the result is a loss. It doesn't mean you've done anything wrong.
2. Accept the risk - Especially if you trade earnings! (high risk trades)
3. Use options to decrease your capital at risk (if you do not know how to trade options, learn.. don't use it without proper knowledge)
4. Shake it off! Losses are part of the game.
5. You will never win them all.

Hope that helps some of you.

Tomer, The MarketZone
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