| By Landon Swan Every quarter, companies report their earnings – and their stock prices swing wildly. Investors get a clearer picture of how well the company is doing, and more important, how the company will likely do in the future. And they react accordingly.
We LOVE earnings events here at LikeFolio.
Companies tell us what has been happening since the last report, and oftentimes, we know in advance what they're going to say. How? Because we're listening to their customers on social media and watching their web traffic patterns.
Are they buying more?
Do they love the product?
Are they going to the website more?
Are they searching for alternatives?
These are the questions we answer each Sunday of earnings season in the LikeFolio Earnings Scorecard – a comprehensive list of all the companies we track that are reporting in the week ahead. (Members – look for a new Week 1 Scorecard to hit your inbox this Sunday evening.) 
Each company is assigned an Earnings Score from -100 (bearish) to +100 (bullish), with scores near zero being neutral. We also put out a recommended trade to take advantage of, which we hand-select from a variety of strategies that offer super short "risk windows" of just five days.
The goal: Get in on Monday, get out by Friday, park your cash, and enjoy that weekend.
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How Effective Is It? LikeFolio's Earnings Edge in Numbers We've been tracking each and every trade we recommend, grouping by type of trade, to answer that very question.
After analyzing nearly 600 trades over the last four quarters of Earnings Season Pass, the results are in. Check it out: 
All told, we delivered 313 wins and 265 losses, amounting to a 54.2% win rate and an average gain of 11.2%.
You'll notice we broke apart bullish versus bearish trades for our analysis. If we combine them by trade type, you'll see something else interesting: 
40% Wins ❯ 79% Wins Yes, you read that right: 40% wins is better than 79% wins. Look above – noting the "High Prob" and "Very Bullish/Bearish" trade types.
The trade type "High Prob," which groups High Probability Bullish and High Probability Bearish spreads, hits at an astounding 78.8% for an average gain of +3.7%.
(Average gain is net and includes winners and losers.)
Keep in mind these trades are all made in five days or less, so +3.7% in a week is unbelievable – and something we'd all take in a heartbeat. Plus, the stability of 78.8% wins is very comforting.
However, these trades require the largest risk-to-reward ratio, meaning you're risking more to win less.
Now, check out "Very Bullish/Bearish," a grouping of all Very Bullish and Very Bearish trades. They only succeed 40% of the time – meaning 60% of them are losers. But look at the average gain: +26%.
Again, this is in ONE WEEK.
And this average gain is net of losers.
The takeaway: With Very Bullish/Bearish trades, you'll see a lot of losers, but the winners are so large they more than make up for it.
Basically, the opposite of the High-Probability Trades. Are You Mentally Strong Enough? Going into any trade knowing you have a 60% or more chance of failure is a tough pill to swallow. But knowing the potential gains more than make up for the lower win percentage should set your mind at ease, as long as you have a long-term mentality.
Sure, on a single trade, it seems bleak. You're probably going to lose.
But on five? Ten? Heck, 100? Over the course of a year, you'll probably see 100 of these Very Bullish or Very Bearish trades in our Earnings Scorecards.
If you can keep your focus on the long run and not worry about a loss here or there, you can reap incredible gains.
Imagine you had a six-sided die. You bet $100 that you can roll a 6. If you're wrong (83% chance), you lose $100. But the other person is foolish enough to give you 10-1 odds. So, when you're right (17%), you win $1,000. 
iStock If that proposition excites you, you're ready for these types of trades.
If you're saying "I would like to take that bet as many times as possible!" then you're REALLY ready for these types of trades.
Many people struggle with this mentality. Can you handle it?
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Why Do Any Other Type of Trade? There are two reasons we are successful with earnings trades: 1. We have incredible data and insights into company performance.
2. We are professional traders who know the best bet for each scenario.
There are three main types of trades we do – and each has a very important purpose: 1. High Probability
We use these when we are fairly confident in the direction and have data showing that the market is expecting far too big of a reaction in the stock. We jump in and grab nearly 80% wins, but the payouts are small. These are "safe" bets with lower (still incredible +3.7% in a week) returns. 2. Coin Flips
We use these when we are pretty confident in the direction, and the market is fairly pricing the expected move of the stock. These should hit at 50% if we had no advantage, but as you saw above, we hit at around 54%. That may not seem impressive, but remember that casinos make billions on 51.5% win rates (blackjack). Over the long term, these are our bread and butter, averaging nearly 10% per trade. 3. Very Bullish/Very Bearish
We use these when we are fairly confident in the direction a stock will move, and the market is way underestimating the likely stock move that a beat or miss could produce. These are tough to hit as discussed above but produce incredible gains when they hit, often +300% or more. Each.
If we did only one type of trade the entire season, we would perform much worse. It is the combination of the LikeFolio advantage with reading market conditions that allows us to select the perfect strategy for each earnings report.
Obviously, you're free to only do the Very Bullish/Very Bearish trades if you like, but we do not recommend converting a Coin Flip into a "Very" style trade.
Stick with the one we prescribe. We have selected it for a reason.
With nearly 600 trades in a year, you have a lot of choices in how to play earnings.
But rest assured, based on our history (past performance does not guarantee future results), the odds are on your side over the long term.
In 48 hours – this Sunday, April 14, at 7:00 p.m. – the first Earnings Scorecard of the Q2 season will hit member inboxes. And with Netflix (NFLX) kicking things off, you won't want to miss this.
If you're not yet a member of Earnings Season Pass, go here now to make sure you're on the list.
Cheers, |
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