Why I would cut my margin balance during earnings season

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You can fantasize about how much your account balance can explode if you get lucky.

However, margin cuts both ways and you can get blasted more times than not.

Protect your capital and play superior defense.

Treat every trade as serious business.

You can learn to do great things and grow your funds systematically.

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Be mindful of correlations and trade your equity curve

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One bad earnings report can impact several of the other names you own.

Trade your equity curve and cut your position sizes if vol increases.

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What not to trade during earnings season

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Making a big bet before an earnings announcement is a gamble.

You can’t infer what the company is going to report because “you see something” in the chart pattern.

Here are my thoughts.

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Studying your backtest to harvest the gems that can improve your overall model

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This might be too “inside baseball” for some, but you can study the simulated backtest of a model and use the insights gained to go back and adjust your rules.

You can segment the winning trades from the losing trades and study both outcomes to improve your entries, bet size, and exits.

By doing so, you might be able to improve either your winning and losing percentages or the expected value of a trade for the rules you’ll follow.

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How to determine the best trading methodology for you

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Trading systems have different accuracy rates and ratios between winners and losers.

Knowing these ahead of time might better help you determine which is most suitable for you – at least to start with.

A trend following model might have 30% winning percentage with winners being 3 times the size of the losers.

A particular chart reading model might have a 70% winning percentage, but a winner / loser ratio that is more like 1.5 to 1.

Both can have a positive expected value of a trade, so they can be worth following.

Also to consider are the transaction costs and clearing fees if one system is more active than another.

One might be a better fit for you although both are expected to make money.

In other words, you might have trouble following one over the other because of your emotional and psychological makeup.

Of course, knowledge of yourself first is the best way to evaluate trading rules when determining compatibility.

Click here to get your free copy of The Inner Voice of Trading audiobook.