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How to become good at trading Episodic Pivots

Posted on 2/12/2010

 The way market operates you never know on which day a big Episodic Pivots (EP)stock  will show up which can make your year. The essence of Episodic Pivots is surprise and by definition you cannot anticipate a surprise.

One of my biggest EP trade was on a stock which had a EP on a day where only 20-30  or so stocks were up and everything was crashing post the Sept 11 market swoon. It was a company making bomb detection equipment for airports. It went up over 70 times in next 6-9 month and was finally bought by GE.

So the idea should be to develop a very well thought out daily plan for trading EP. To do so you must divide the day in to parts and have plan/checklist for each:
  1. After market close earnings: This is when companies announce earnings or guide higher. You must have a plan to track both. When doing this find just 1 or 2 good source of information and track it. Do not make it a complex process. I track Briefings earnings page and IBD earnings summary for this. Earnings Calendar (Free resource)
  2. After Market Earnings Guidance: Earnings Whisper email ( free resource)
  3. After market close price gainers: This you can find on WSJ page. (Free resource)
  4. Before open earnings: Again I look at the Briefings calendar for this.
  5. Before Market Price gainers: I use IB scanner for this. This scanner I open from 7 AM onwards 

These are the only things you need.

Besides that you need conceptual clarity on following things:

EPS: What is is and how it is calculated and manipulated. What drives EPS growth.
Sales: What is sales . What drives sales growth.
Float:What is float. Why is it important.
Growth: What is a growth stock
Turnaround: What is a turnaround stock
Funds ownership: What drives fund buying
Neglect: what is neglect and why it is important
Value: what is a value stock
New Growth: what is a new to market growth
Old growth: What is old (known) growth story
Margin: what is margin and what drives margin
Cyclical growth: what are cyclical industries and what is cyclical growth
Earnings cycle: what is earnings cycle
Earnings momentum: what is earnings momentum

If you can explain these things to 10 year kid then you have conceptual clarity.