The Shields of Long-Term Winners – Earnings and Channels

         

Earning Channel

 

Earning Channel uses company earnings and price channels to screen out profitable targets and to determine the best timing to buy and sell, or short and cover.

 

Our intention has been trying to help ordinary investors. By ordinary investors, we mean ordinary people who would spend 2 hours or so per week in studying his/her stock investment, and are not professionals or full-time day traders.

 

Regardless of building a long or short position, the most important thing is to confirm the trend of the fundamentals.

 

Earning Channel provides company earnings and financial statements to facilitate quick referencing. The stocks or ETFs that we recommend are: the trends of fundamentals match the trends of the prices, and the movement of the prices formed channels. A channel is formed when the stock price travels in a wavy manner along a nearly parallel resistance line and support line, and with at least two peaks and troughs (dips) touch the two lines.

 

Please refers to

What to buy now? How about Coca-Cola?

What to short now and how DIY?

 

Once you narrow your targets, it is advised that you do your own due diligent thoroughly before committing your money. There are many investment institutions and third-party platforms provide a lot of information, the following is worthy of reference.

 

In addition to the well-known finance!Yahoo, the famous Wall Street Journal, Barron, Market Watch, and so on, one can find insightful views in Seeking Alpha and Motley Fool.

 

But the news and information have some common shortcomings.

  1. Investors tend to find or interpret messages that support their own thoughts.
  2. The risk of certain companies or industries is high in itself.
  3. Financial journalists or analysts may be blinded by the information they receive, which in turn produces smoke and mirrors.
  4. The research department is sometimes bound by the investment department of the same institution, especially when the investment department wishes to substantially increase or decrease its holdings.
  5. The information available to ordinary investors are often not enough to make a sound judgment. For example, what is the ratio of the “new” product line to the company’s “future” revenue and profitability?
  6. Simply unlawful and false information.

 

As for the fundamentals, the biggest problem is that some of the company’s financial statements are false. Even with the strict regulation imposed by FCC, there have been large landmines from time to time. For example, Enron and Worldcom made investors lose $74 billion and $180 billion, respectively. Ironically, Fortune Magazine named Enron American’s most innovative company six years in a row prior to the scandal. To make things worse, the financial statements ordinary investors relied on were signed by renowned firm, Arthur Anderson. This kind of issues is much worse in the emerging markets.

 

http://www.accounting-degree.org/scandals/

 

So, who’s going to protect us, ordinary investors? Ourselves, with proper methods.

Here are some of the means for us to protect our own interests.

 

  1. Follow the money. See if, the company insiders and institutional investors are committed and have steadily increased their positions. Reflexed in the price movement, it often forms a channel, and the channel direction matches the trend of the fundamentals.
  2. Follow the price. When the dream-earnings or actual earnings is punctured, that is, when the losses expand, or when the earnings or prices drop sharply, it is time to protect ourselves. Most often, in this case, a long-term channel will be broken. Stock price changes usually lead the publication of financial statements by 1 to 3 months. So, when a long-term channel ruptured, if the situation is unclear to you, our suggestion is to sell and step aside.
  3. Follow the trend, don’t lead. Even if you think you understand the company or industry thoroughly, you can be a prophet, but do not be the first one to place the bet. Trying to buy at the bottom, or short-selling at the top can hurt you badly. Ordinary investors can’t reverse the trend. When the price falls to a theoretical low (if there’s any), it can be oversold. One should wait until at least a daily channel is formed before establishing a long position.
  4. Follow the channel. Do not buy at the wrong price point, even if the long-term looks promising. When the price drops shortly after you bought or when it rises after you sold, you are putting yourself under pressure, and are prone to make mistakes. So, don’t buy near the upper wall of the channel. Don’t buy a stock that has already gained a lot and then surged, that is, the price surged and broke the break-up line of the long-term up-channel.

 

In principle, follows the proverbs of Buffett and Peter Lynch:

  • Do not lose money (do not gamble). Wait for the forming of a channel. If you buy three months after Buffet, then you are well off.
  • Buy what you know (the growth of earnings in the past) plus things you can judge with common sense (future growth). If you can’t judge, and the price fluctuated, do not bet, look for other opportunities.
  • Buy those you can hold, those that will reward you with compound returns (Buffett’s Law). Those price movements form good looking channels.
  • Buy stocks you can hold for at least a period of time, and continue to look for targets with higher rewards and stability during this period of time. (Lynch’s Law). For the emerging stock market, this method may be relatively safe.

 

Please refer to “Invest in 1400 stocks, turnover rate 343%, Insane or Useful? What to do now?

 

Even for all a mighty company, if you buy at a high price, and have to hold on for years just to get even, this is really harmful to your spirits. Not to mention many of the stocks never return to their peaks. Those skyrocketing stocks, once reversed, often shattered the investors to pieces.

 

How to resist the kind of deadly attractions, please refer to “Can I buy Amazon? How about others?

 

The second part of the Earning Channel, the channel, is to prevent you from buying/selling at the wrong timing.

 

The principle of channel trading assists investors in buying and selling at the right time to avoid unnecessary mistakes and pain. Earning Channel is to automate channel trading.

 

You can use channel trading to exercise band trading or to build up position to hold, depending on the stages of channels. For instance, when a stock has already gained a lot, it’s wise to use band trading tactics to protect your position. When the price movement just formed a weekly channel, it is time to gradually build up a position with optimal timing offers by Earning Channel.

 

If you are not familiar with channel trading please refer to “The Basics of Channel Trading.

 

In addition to using the channel trading rules to find the optimal timing, channels could be used to identify the tops and bottoms.

 

Those who can sell near the tops, and buy near the bottoms are the true long-term winners. Buffett can hold a surplus near the tops, and then as a savior (rescuer) with enough cash to buy a huge quantity near the bottoms.

 

How can ordinary investors take proper actions in the next stock market crash, the next big wave, or at the top or bottom of a particular stock? Earning Channel can help. Please refer to

Topping Patterns and Channel Trading” and

Bottom Patterns and Channel Trading

 

When a stock fell after a long climb, it is hard for ordinary investors to resist from buying more to smooth out the cost, or to bottom fishing the lowest price.

 

The principles of channel trading and the usage of Earning Channel can prevent you from hurting yourself. Please refer to

Painless Prevention of Flattening and Bottom Fishing

 

For those who are well prepared and experienced, they can also use Earning Channel to short sell when a long-term top is formed. Please refer to

What to short now and how DIY?

How to handle short-squeeze, DIY?

 

We hope that this article will help you to use the “earnings” and “channel” to enhance your investment returns and reduce risks.

 

The best advice we can give is to come out with a set of rules and methods for your own, by practicing with Earning Channel. This system will help you make good use of your valuable time and money.  You will find it increasingly easier to determine what to buy, and when to buy or sell.

 

You will soon able to judge if the so called experts make sense. You’ll no longer panic and withdrawing back to seeking tips from others or making senseless bets just by looking at the price.

 

Earning Channel is a tool to help you sticking to proper common sense.

 

To gain financial freedom, you need to own financial management capability.

 

Look luck and best wishes on your investment!

 

All of the stocks and ETFs mentioned in our articles are meant to explain the usage of earnings and channels. We have no intention to recommend any stock. Our company and team will not buy, sell or short any of the stocks in a near term futures of the publication. All of the stock prices and timing are for illustration purposes. You should make the final judgment of your own investment.

The Earning Channel software, as well as the articles, tutorials and suggestions in the website and social media, are provided as tools and references to help users develop their own market analyses and make their own investment decisions. Users are ultimately responsible for the way in which they use this information to invest in the stock market. Nothing associated with the Earning Channel or the information presented in articles and tutorials should be interpreted as direct advice on buying or selling of securities.