Concept and execution

99% of the time, in my experience, the hard part about creativity isn't coming up with something no one has ever thought of before. The hard part is actually executing the thing you've thought of

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Seth Godin

Today morning I spent some time answering number of emails about both the IBD200 and earnings lead breakouts which I have been discussing for sometime. Much of the discussions involved how to make the concept work. The actual execution of any concept is the key.

Supposing you get convinced that earnings drive long term stock price growth(for many it is the most difficult thing to believe), the next step is to translate that concept in to a strategy. There are number of options to do that. You might want to follow a strategy of earnings anticipation or a strategy of earnings reaction. You can follow a strategy of earnings announcement as a buy catalyst.There are several strategic options which one must look at and be convinced about. If that hurdle is overcome then comes the tactical part of entries, exits, position sizing, portfolio building, risk management etc.

Many traders start with the tactical part first without spending enough time thinking through the larger concept, that is why they get disillusioned fast and conclude this thing does not work. Backtesting alone without a larger context is waste of time.

One of the most critical thing to making any thing work in the market is to understand the larger context. That is difficult task because as a beginner trader many times your knowledge and context is so limited that unless you are willing to put significant effort it just does not work.

The problem is even bigger for experienced traders because many have firmly established beliefs and a contextual framework to look at markets. Changing that is extremely difficult. Changing paradigms is never easy in trading as well as in real life. That is why you will find very few change agents in real life. That is one of the reason why few can make a concept which works for someone make work for themselves.

The other difficulty is in motivation level of both parties, the part trying to learn the context and party trying to impart the context. Many times the transaction is not motivating enough for the imparting party to spend enough time on or commit the necessary long term effort required to impart the context.

I have been working and revising a larger post about the context to the earnings strategy to better answer many of the questions and hopefully will have it ready by this weekend. I have the title for the post ready- Earnings Expectation Cycle and the Cinderella Strategy