The best time to trade stocks is coming up.
This has been one of the best years in terms of trading opportunities I’ve ever seen. And in July when Q2 earnings are released, there will be even more opportunities to grow your trading account.
In order to capitalize, you need to have a firm understanding of earnings season, how stocks typically behave during this period of the trading year, and which trading strategies to use.
Here is why earnings season is one of the biggest trading opportunities of the year, and how you can capitalize:
Trade the Reaction, Don’t Gamble
One of the most important things to remember about trading earnings reports: There is no edge trading to guess the outcome of a company’s quarterly earnings report before it’s released. This is pure gambling. That is not what our earnings trading strategies involve.
We focus on trading the price action in REACTION to the earnings report. I’ve seen stocks tank after amazing earnings reports. And I’ve seen them go to the moon after awful ones.
Price action is king. Our goal when trading stocks during earnings season: Follow the trend and ride the momentum, via day trades and swing trades. Now let’s get into how stocks behave after these reports are released:
Strong, Meaningful Catalysts
There is no better stock catalyst than quarterly earnings. Investors on all-time horizons make big decisions with their position in the company based on this report.
Day traders jump in to capture short term momentum at the market open. Swing traders capture the trend in the days/weeks following the release. Long-term investors add or take off risk based off this report. This is not a fluffed-up PR from a penny stock causing a pump-and-dump.
These reports lay all the cards on the table. The company is either hitting shareholder expectations or not. After these reports we consistently see stocks ignite clean, strong trends for A+ day trading and swing trading opportunities.
With the attention of so many investors and traders, stocks will often trade with high relative volume after an earnings report. This allows you to trade larger positions sizes if you want and allows you to enter and exit trades with ease, without the worry of slippage or bad spreads.
Explosive and Clean Moves
This catalyst consistently, ignites 5%, 10%, and even bigger moves in stocks. Since this catalyst plays such a key role in investor decision making, all the big players on Wall Street add or take off risk the days and weeks following these reports.
The type of trends following earnings reports often result in the cleanest trends. Long and short. Look at how Netflix traded after its earnings report in April:
It went from trading in the $370s to $440s in just 4 trading days. And for us retail traders, it’s our job to capitalize on the momentum through day trades and swing trades.
Day Trading Opportunities
There is often a gap-up or gap-down in stock following an earnings reports the day after it’s released. Once the bell rings, all these investors an traders are pulling the trigger. This results in high volatilitity and expanded range in stocks. This means it’s a day traders paradise if you know the right strategies.
I almost always recommend waiting at least 5 minutes after the market open before taking any day trades on an earnings stock. Give it some time to let the trend form, and then join it.
Swing Trading Opportunities
One of the best ways to capture a move after an earnings report is to buy and hold the stock for a few days or weeks. Often a stock’s trend won’t settle immediately after the report comes out. If the stock gaps up, it might need to consolidate for a few days before making the next move higher.
Same idea if a strong stock gaps down, especially in a strong overall market environment like we’ve seen the past few months, we can often get strong reversals once the stocks bases and consolidates. (Check out an example of a trade Paul took on Netflix earlier this year)
To swing trade successfully, you need to know the right stocks to be in. Many stocks that report earnings are not of interest to off for swing trades. In our upcoming live earnings swing trading course, my former mentor Paul Singh will show you how to pick the right earnings stocks to trade.
You also need to know strategies that give you signals to enter and exit at the correct times. Picking the right stock is only part of the battle.
In the upcoming earnings swing trading course, we will also show you 12 of our favorite swing trading strategies to capitalize on a stock’s momentum following their earnings report. Learn more about the course below:
Brand New Earnings Swing Trading Course!
Only 29 seats are left in the course! Until June 27th you can get 33% off.