A scenario is a group of similar events proven to cause movements in share prices. In most cases, the events within a scenario move prices in the same direction - up or down.
Events within Bullish scenarios tend to push stock prices higher, typically, while events within Bearish scenarios influence stock prices to move lower.
The impact of an event on a share price also depends on the sector and the company's financials. For example, when a CEO leaves a high growth company, the share price typically drops. When a CEO is fired from a poor performing company, the share price often rises on the hope a better CEO will improve the company's financials.
Scenarios are useful for understanding the reason for a stock's price movement. It also creates a repeatable trading or investment strategy, because you can forecast how events will affect companies again and again. That leaves room to trade or invest when each event happens.
Within each scenario, there is a win rate and an average 1 day impact to the price of the stock. The win rate is the percentage of events that moved in the direction of the scenario (bullish or bearish). A bullish scenario with a win rate of 80% means that if you traded each time the event happened by buying the stock, 80% of the time the stock would go up in price. Sometimes, during a market selloff, even the most Bullish events aren't enough to overcome negative sentiment.
The average 1 day impact is the average price movement of all events within a scenario over the course of one trading day after the event occurs. It's meant to give an overview of how the events in a scenario typically affect stock prices. Remember, the sector and financials of a company also influence how investors react to the news of an event.
The cumulative return of a scenario is the sum of all the individual one day price movements, following an event, for the period of time selected which you can change anytime.
TYPES OF TRADING
While the data easily enables short term trades, it's important to note the scenarios are there to help trade and invest in multiple ways.
- Day trading - the scenario average return can be used to determine the entry and exit point.
- If the event moves past this average, there may be are small selloff coming as investors take gains. This creates a dip which can be another entry point into the trade.
- Alternatively, some traders may short the stock after a large move using put options.
- Before engaging in the trade, it's best to use the system and its filters to group similar companies. This will change both the win rate and the avg. 1D move. This is important as a large value company does not react the same as a small growth tech company.
- If the event moves past this average, there may be are small selloff coming as investors take gains. This creates a dip which can be another entry point into the trade.
- Swing trading - the scenarios don't have to be one day events. Often, these events mark a turning point for the company or serve as a flag for understanding the company's performance and the leadership's outlook.
- For example, a large dividend increase indicates a company that is not concerned with preserving cash in the face of coming problems or lower revenue. Often the best trades are in finding companies that have faced some turmoil and are turning a corner. The scenario events help uncover this.
- For example, a large dividend increase indicates a company that is not concerned with preserving cash in the face of coming problems or lower revenue. Often the best trades are in finding companies that have faced some turmoil and are turning a corner. The scenario events help uncover this.
- Long-term Investing - some of the events LevelFields tracks serve as longer term catalysts. New CEOs, activist investors, product launches, and large buybacks can be indicators that the company is positioned for increased earnings growth longer term.
READ MORE: SCENARIO DEFINITIONS
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