Trade Date: 03/08/17 – 05/04/17
On February 17th, $ANET reported strong 2016 4th quarter earnings with an EPS of $1.04 and $328 million in revenue. After market trading pushed the stock into All Time High territory, adding this stock to our Long Term Swing Trade watchlist. After stalking it for a few days for a setup, $ANET broke out of its bull flag setup allowing for an entry. This cloud computing software developer has me on cloud 9! Corny, I know.
Position Bias: Bullish
Trade Style: Swing Trade
- Breakout Volume (Volume on Earnings Day): 5.91 million shares
- Daily Average Volume: 728.70 thousand shares
- Relative Volume: 8.12
- Average True Range: $ 2.18
- Swing Setup: Bull Flag
- Breakout Price: $ 123.12
Entry Price & Time
$ANET put in a great bull flag setup, with a slight descending wedge for its consolidation. But the stock held up nicely around the $120.00 level. If it broke down, I was ready to walk away but on March 8th, the stock pushed higher and pierced through the $123.12 level. Entered the stock with a stop at $114.00
Entry Price: $ 123.12
Entry Date: 03/08/17
Stop Price: $ 114.00
Risk: $ 9.12
Trade Management and Psychology
After I entered my trade the price stalled for a bit, but never violated the setup or dipped close to my stop price. By buying on the breakout, I try to capture the move immediately as it’s happening. But because the market is unpredictable, it’s also unreasonable to expect the price to move in your favor immediately after you enter. After 2 days of waiting, the price finally starting to move up.
$ANET’s green candles were never violent, but rather slow and steady. These are actually the painless, easier trades to manage. It never pulled back hard so all I had to do was sit back and wait until the next earnings day.
Exit Price & Time
The predictions for $ANET’s next earnings report were strong, with many analysts anticipating blowout numbers. Despite the temptations, a cardinal rule is to never hold through earnings. That would transform me from a risk manager to a gambler. I closed my position at 3:30PM immediately before the market’s close.
Although the stock closed at $144.72 for the day, it could have just as easily dropped down 5%. I have no regrets with this trade.
Exit Price: $139.86
Exit Date: 5/4/17
Results and Evaluation
Overall I’m very pleased with this trade. The setup was a valid bull flag pattern entering All Time High territory. Entry was timed well on the breakout of the setup with a stop below the consolidation at $144.00. Trade was exited without hesitation prior to the following earnings statement. My reward for this trade was higher than +1 R multiple as well.
Risk: $ 9.12
Reward: $ 16.74
R Multiple: + 1.71 R