ASO

Academy Sports and Outdoors

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$5.41 +13.46%
A Bunch of Stocks Getting Blown Up
Here are a bunch of stocks getting absolutely blown up over the last couple of weeks/months:

Visit highsandlows.substack.com to see more
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Erick Mokaya's avatar
$101.9m follower assets
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$22.4m follower assets
Upcoming Earnings Calendar (Dec. 6th-10th)
Happy Friday everyone! Here is next week's upcoming earnings calendar. I have no position in any of these stocks but there are several that intrigue me:

  • $RH - This company always beats expectations, their management is extremely good, and the valuation (21x Fwd PE) is attractive. A post-earnings sell-off might be a good time to buy.
  • $LULU - $AEO reported strong casual wear sales so Lululemon should also post strong results.
  • $S - I believe cybersecurity stocks will be winners in the coming decade and I want to learn more about the space. The valuation for this one and $CRWD is too high for my liking but hopefully, we'll get good opportunities after the sell-off.
  • $PATH - What this company is doing with automation is very interesting but I don't know enough about it to comment.

Remember, if you'd like an easier way to track earnings dates, you can automatically sync your portfolio's earning dates to your personal calendar with just a couple of clicks here.

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Stop Losses - the most difficult, least glamorous, most essential part of trading.
Preamble
All of my posts are from a genuine experience or things that I am currently doing; Stop Losses are no different, but they're a bit special to me. Everybody speaks of "Risk Reduction" and "Money Management" but very few explain what this means or how to do it. And if you search for "trading tips" or similar, it's always memorising chart patterns and using novel strategies. Very few places do a good job of helping you reduce your losses when they happen...because they do happen...a hell of a lot more than I thought they would. I lost a stupid amount of money early on in my trading history because
  • I didn't realise how important Stop Losses were

  • When I finally realised, I didn't have the self-discipline to stick to them

I learnt the hard way, possibly the hardest way, about Stop Losses and I hope this post will help others avoid the same mistakes I made.

A good Stop Loss process will be unique to the trader that employs it, and not every trader/investor will use one. For example, a leveraged forex day-trader will have very different Stop Loss rules to a fundamental analyst looking to invest in early-stage growth stocks. I would classify myself as a short-term swing trader, relying primarily on technical signals, and my Stop Loss process reflects this. It may not be exactly what you're looking for but hopefully it will give you an idea or some inspiration.

My Stop Loss Rule
Figuring out where to put your Stop Losses is oddly difficult. You'd expect it to be quite intuitive but without adhering to strict rules it can become increasingly arbitrary and the value of failed trades can quickly snowball.
  • Never risk more than 2% of your investment capital in a single trade.

  • The Reward/Risk Ratio must be at least one.

  • I aim for positions that I believe will make me 10% in fewer than 30 calendar days.

The first rule above is fairly generic (but sensible) - it's a piece of advice I once read but have stuck with. The second two are pillars of my strategy that shape every trade I make, and given that my desired Reward for all positions is 10% then the maximum risk I can allow for any trade is also 10%. Combining all three gives me my Stop Loss Rule:
  • I cannot lose more than 2% of my capital or 10% of the position, whichever is smaller, in a single trade. But you don't have to risk the maximum amount.

I have $2,000 trading capital:

Example A
2% of capital = $40
Open a Position of $300
10% of position = $30
Stop Loss cannot exceed $30

Example B
2% of capital = $40
Open a Position of $1,000
10% of position = $100
Stop Loss cannot exceed $40

Real Trade Examples
4th October 2021 12:43 BST
Bought 3 shares of $NKE @ $146.31 = $438.93 position total
2% of capital = $40
10% of position = $43.893
Maximum permitted loss = $40 (smaller of the two)
Maximum Stop Loss = $146.31 - ($40/3 shares) = $132.98

I entered this trade anticipating a bounce from the red dashed line. If it broke through the line, it would have invalidated the reason for entering, so a Stop Loss was set at $141.99 to allow a little wiggle room. It's much tighter than the maximum permitted of $132.98 but there was no reason to expose myself to unnecessary losses.
Fortunately, the trade bounced as expected and closed on my Take Profit order rather than my Stop Loss.

1st October 2021 20:49 BST
Bought 10 shares of $ASO @ $40.02 = $400.20 position total
2% of capital = $40
10% of position = $40.02
Maximum permitted loss = $40 (smaller of the two)
Maximum Stop Loss = $40.02 - ($40/10 shares) = $36.02

Similar to the previous trade, I was expecting an immediate bounce back up following the rejection candle from the support. My Stop Loss was exceptionally tight here at $39.68 - enough to allow wiggle room again but if the price reached lower it would have invalidated the entry criteria of the trade. The trade closed the very next day which was disappointing but, looking at the chart today (17th October), justified.

$ASO has netted barely 1% in the following two weeks since the trade closed and the capital has since been put to better use.

12th October 2021 20:41 BST
Bought 18 shares of $APA @ $24.64 = $443.52 position total
2% of capital = $40
10% of position = $44.352
Maximum permitted loss = $40 (smaller of the two)
Maximum Stop Loss = $24.64 - ($40/18 shares) = $22.42

$APA had just registered its second close above a key resistance level, pulling back slightly but not unexpectedly so, and this met several entry criteria. At the time I didn't expect much more of a pullback so set a Stop Loss of $24 - much tighter than the maximum permissible.
The trade closed the very next day, 19 minutes after open, but the stock actually regained ground very quickly and has almost hit my Original Take Profit (OTP) target of $27.11. Below is what the chart looks like as of right now:

If my Stop Loss was at the maximum permitted, the trade would be still be open and hitting $27.11 looks very achievable - this could have been a profitable trade. It's also possible, unlikely but not unfeasible, for it to reverse entirely and crash back down.

Conclusion
Stop Loss rules are not easy to create, and even once they're created it's not always easy to adhere to them. Sometimes, hindsight will show that your Stop Loss actually caused you to exit what could have been a profitable trade. But providing your trades are based on solid decision-making, and your Stop Losses are appropriate to your strategy, they will save you an extraordinary amount of money and keep you in the trading game long enough to hone your skills.

@jonathanjohnson @doughelton I hope this helps!
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This is gold Michael 👏
The examples are very approachable & clear, and the preamble and explanation of the rule provide the necessary context for people to fully understand the type of investing you’re doing and how you’re going about doing it. Great post!
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Next week's (Sep 7 - 11) featured earnings
Happy Labor day weekend. Here are some interesting earnings from the next 4-day week.

No companies in my portfolio, but I'll be closely watching $COUP (looking for bookings and RPO growth) $SMAR (will be comparing to the growth at $MNDY and $ASAN) $LULU (mirror sales and traction on male clothing) $AFRM (any more color on $AMZN deal)

Which companies are you excited to hear from and are you looking for anything specific from the call.

P.S. If you want an easy way to NEVER forget an earnings call, you can use the Fincredible service to automatically sync earning events to your personal calendar for the companies you follow here

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FRI:BMO: $KR $SY $TIGR
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Don't own it but absolutely love $RH. Fairly similar target market to $LULU which also reports. Will be interesting to get more info on the Mirror acquisition by LULU, if any.
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