Hey 5-Star Trader,
“Tuesday Trade” Journal: One of the most important concepts in trading is to review your work, and learn from the good and the bad. It’s critical to identify what’s working — to do more of it. So, to lead by example, each Tuesday, you’ll get a trade from my trading journal, in which I explain my thought process from start to finish. Trading is all about finding something that works, and applying it over and over again. That’s how you find trading success. So study up on this “Tuesday Trade” and let’s get to work.
For this week’s “Tuesday Trade,” I want to outline my three-week trade in JPMorgan Chase (JPM).
April marks the beginning of quarter two, and many companies in the next 13 weeks are preparing to report their earnings. One of my favorite setups going into this reporting season is the “run into earnings” trades and because I know banks tend to report first, I was looking for a bank to take a trade in.
After scanning the market for potential candidates, I landed on JPMorgan Chase (JPM) and entered a long call butterfly @3.08 Limit Orders (LMT) on March 24th.* My target was $160, making it a 1:2 risk-reward ratio and I did it because the 21-day average has a move of about 4.69% which is about $7.00.
*Note: The entry on March 24th was deliberate. This day marked the 21-day period before theJPM earnings report release date set for April 14.
Due to the volatility in the market at that time, I decided not to use stops. Instead, I used smaller position sizes to mitigate my risk. I usually put on 5% positions, but was in 2.5% for this particular trade. (That’s a key trading strategy I emphasize in my mastery program.)
Trade gets rough fast…
One week into this trade and the market was choppy. We saw the Nasdaq was wavering between the 100 and 200 Simple Moving Average (SMA) to the downside and the 50 SMA to the upside, but I was still confident in this trade. JPM was a relative strength winner among the banking sector, and as we got closer into the 21-day window prior to earnings in tech, I expected more price movement in the Nasdaq to the upside.
Timing early exit to take gains…
After almost three weeks of holding this long-call butterfly, I finally decided to close my trade in JPM two days before their earnings report date for @6.85 LMT. In the back of my mind, I know it could have rallied a bit more, especially into the last day before its report, but the fact that it had one day left in expiration pushed me to take profits. It is also important to note that my choice for the date of expiration was intentional. As a rule of thumb, I always set my “run into earnings” trades to expire one day or more before the report is released. This is because I don’t want the outcome of the report to be entangled with the trade I’ve taken prior to the results.
Capping off this week’s “Tuesday Trade,” the “run into earnings” season is fully upon us, and as more reports come out, the market will transition into trading the earnings report. It is totally possible to catch these moves, as we know they are coming, just make sure you’re timing them right!
Learn more about the timing of earnings trades, and live-trade with me this week during earnings report moves in my class! Click to learn more.