What A Former Mob Associate Taught Me About Trading
My favorite scene in Martin Scorsese's hit movie "Casino" is when Nicky (Joe Pesci) expounds on Ace's (Robert De Niro) uncanny knack for picking winners.
Ace's secret to picking the winning team was finding out all the "inside stuff that nobody else knew," like whether the quarterback was doing drugs, how the wind velocity was going to affect field goals... all the way down to figuring out the different ways basketballs bounced off the various kinds of wood used on college basketball courts.
Ace's story was based on the true life of Frank "Lefty" Rosenthal, who was arguably the top bookmaker in America for decades. In fact, I admired Rosenthal, not because of his illegal dealings (of which he had many), but because he had the utmost confidence in odds and understood the importance of stacking them in his favor.
In a sense, I often borrow from his playbook for the trades that I recommend to readers of my premium newsletter, Profit Amplifier . While I don't lie, cheat or steal, I do go the extra length to stack the odds in my favor by layering on as much "edge" as I can in every trade.
Where I Found My First Edge
I got my first taste of the market was when I was just 12 years old. My uncle had a friend who worked on the floor at the New York Stock Exchange. So we went to visit him one day, and I was hooked.
I started studying anything I could about the markets. By the time I was 16, I'd developed my own system. I actually wrote my own computer program. And I would trade part-time after school (using my mother's brokerage account, since I was a minor).
By the time I was 19, a member of the Philadelphia Stock Exchange took notice of me and brought me on board.
Then, two years later, a large Wall Street firm found out about me, and I went to trade for them. I was the largest-volume trader for the Nasdaq 100, and for Dell and Cisco. My trades often had risk of millions, sometimes tens of millions, of dollars.
The stakes were high, but I loved it. And I'm proud to say that I did well.
While on Wall Street, I saw all kinds of trading strategies. But I soon realized that the best way to get quick gains was to trade around earnings announcements.
So I got to work creating a trading system, eventually coming up with what I call my "Earnings Algorithm." With it, I was consistently booking 20%... 40%... 75%... even 100% or more in a matter of weeks.
How My Earnings Algorithm Can Give You An Edge
In short, my algorithm predicts whether a company is likely to beat or miss earnings estimates.
Like Ace and Lefty, I'm looking for the "inside stuff" that most traders are overlooking.
Investors often take analyst recommendations -- whether we should buy, sell or hold -- at face value. But I've learned that there are overlooked details to these reports that tell a much different story. If you know what to look for, these details can spell big opportunity.
What makes my earnings system different is that I analyze the analysts. Rather than sift through thousands of pages of data myself, I let the analysts do the work and then examine their actions leading up to earnings season.
I have four main "tells" I look for when I'm analyzing the analysts, and each is critical to my earnings algorithm.
Basically, I figure out the "tells" of good analysts, compare them against a series of technical indicators, and figure out which companies are likely to beat or miss earnings.
Of course, it wouldn't be prudent for me to share the specific "tells" and indicators. If I did, a lot of people would start using my algorithm and it would become less effective.
But I can show you the kind of stock my algorithm flags, which is what's really important.
CVS Health Corporation (NYSE: CVS ) is a great example.
Leading up to one of the company's quarterly earnings report, I ran it through my algorithm, which showed a clear beat was in store. So, I quickly rushed an alert to investors, telling them to place a bullish bet on the stock.
Sure enough, shares moved higher. And anybody who followed my trade recommendation locked in a 57% gain in just over two weeks.
Fast forward a few months, and I once again saw a chance to profit from the pharmacy operator. This time I noted that analysts were jockeying to raise price targets ahead of CVS' report -- a clear "tell" of a beat -- which was about a week and a half away.
But we didn't even have to wait that long. Just five days after I recommended a bullish trade, those who followed my advice closed out with a 22% profit, which works out to an annualized gain of more than 1,600%. (CVS went on to beat expectations a few days later.)
Trades like this aren't as extraordinary as they may seem. In fact, they are par for the course during earnings season. And with earnings season around the corner, you have a small window if you want in on the action.
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