12 Keys to Trading Earnings for Profits

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#5 The Key to Earnings Analysis

There are all sorts of ways to analyze the market.  Everyone knows about fundamental analysis -- earnings, interest rates, P/E ratios, innovative products, etc.  And most are aware of technical analysis -- charts, moving averages, trends, momentum, etc. 

These are fine tools, but almost everyone is aware of them.  So does that really provide an edge?  After all, isn't an edge an advantage?  How can you have an advantage doing what everyone else is doing? 

Ultimately it comes down to the people doing the buying and selling.  And it's their desires or sentiment that dictates their behavior that determines whether to buy or sell. 

That's where we gain our edge.  By analyzing sentiment, we can derive a predictive model of the resulting behavior that will be displayed toward a stock.  Fundamentals and technicals (the tools used by most to define their "edge") are inputs to the model, but they're not sufficient.  We add sentiment, measured both qualitatively and quantitatively, to give a behavioral picture of how a stock should move.  In other words, we use this model to value a stock based upon its behavioral characteristics.