Lessons  Learnt  Trading  $XLNX

"It's necessary for us to learn from other's mistakes. You will not live long enough to make them all yourself."

By Hyman Rickover, US Navy Admiral

Investing and trading Growth Stocks is all about making profits in the market.  One of the main reasons for trading IBD (Investors Business Daily) style of stocks is the  GREED  factor.  Data shows that such stocks tend to do 2 to 2 1/2 better than the what the general market does using  $SPY  as a measure of the stock market performance.  $XLNX  was one of such stocks that came up when one scans for stocks that gaps up in volume several times the normal average trading volume.  This is a sure sign displayed by the institutions that they want to accumulate these shares.  Retail investors such as ourselves ought to pick up on this signal and take a position in the stock to ride the wave of accumulation exhibited by the institutions. 

One of the biggest risk factor to consider with any stock holdings or purchases is the earnings report date.  One never knows how the institutions are going to react to the earnings report.  $XLNX  had surged  +10%  to  +20%   within days of earnings report in July 2018, Oct 2018 and Jan 2019.  Trading volume on these 3 earnings report was 4 to 10 times the daily average trading volume.  That is a sure sign of institutional interest.  GREED factor sets in once you acquire this stock.  One would have the feeling that this stock would continue to behave that way during the earnings on April 24th after the market close.  A good rule of thumb to follow is to reduce the size of your position to satisfy your  GREED  of making a huge gains during earnings.  This way you are not exposing your entire position to the risk of a nasty earnings surprise.  $XLNX  had already attained a profit of  +29.77%  prior to the earnings announcement.  

$XLNX  reported earnings on April 24th after the market close.  They posted a  +30%  gain in revenue and  +34%  gain in earnings.  This would be considered good earnings and sales report but the institutions were not thrilled with these numbers.  The next day on April 25th, the stock gapped down and plummeted   -17%   in volume that was 12 times the daily average trading volume.  Institutions were done with this stock as well as other chip stocks that belonged to the same group as  $XLNX.  Having a trailing stop would not have helped mitigate the losses since the stock had gapped down. 

As indicated in my last 2 posts where I highlighted the synopsis of the trade and 5 possible trade plans to put in place on April 22nd, it makes sense to close out and harvest profits of  +29.77%  prior to the day of earnings release.  To satisfy the  GREED  factor and taking advantage of the stock possibly making a  +10%  to  +20%  gain that the stock had made during previous earnings report, one could have left a small half a position initiated at  $131.41  on April 11th.  This half position is designed to minimize the risk but also to take the advantage of higher profits just in case the stock behaved the way it had done during the last 3 previous earnings reports.  Your loss would have been only  -12.09%  for the half position (effectively -6.05% for a full position).  You would have still come out with a profit of  +23.72%  combining both the positions.   

Happy Trading!

Amin