Traders who want to trade direction wait for the earnings season to make money trading stocks that open gap up or down.
Usually when a stock gaps up or down they continue the trend for quite some time. Traders want to trade that direction either through equities, futures or options.
One of the best ways to trade earning season is to trade gap up or down. To do that a trader must enter the trade one day before the stock’s earnings are out to take benefit or gap up or down.
There are some stocks with a history or opening after the result season with a huge gap or down.
In this article I will teach you how to find the right earnings gap up or down stocks.
This is the step by step guide.
Note: There is a chance that traders take a wrong direction is futures and suffer heavily once the stocks gaps up/down in another direction. In my future and option course you will learn a future with option hedging strategy where even if you are wrong in future direction you will end up making money. The course not only teaches conservative options strategies but future hedging strategies as well.
Almost all stocks report quarterly earnings so how to select the best stocks for trading that can explode?
Here are some guidelines to find the stocks to trade in the earning season.
1. Daily Volatility & Liquidity are Important
You can get a daily chart from investing.com. If the stock gaps down or up during earnings season historically its worth trading. My Futures and Option course has a good aggressive volatile non-directional strategy for future traders. You can do the course and trade the directional strategy in these kinds of stocks to make money during earnings season.
You must also make sure that the stock has good liquidity else you may be able to get in but find it difficult to get out of a trade.
As soon as you see a profit you must be able to get out.
Once you find these stocks just keep a watch on them and trade them on earnings season.
2. Market Forecasts are Not Wrong
Usually before quarterly report you will find many online business website like MoneyControl write what the market experts expect results from a company. They may not be exactly right but they are right in their approx projections. If quarterly results projection forecast is good, go for long, else go for short. Most of the times you will be right. But make sure you hedge your position. If you are wrong even once you may lose what you earned in last 7-8 trades. You will learn good hedging techniques in my course.
3. Stock’s Daily Range Is Important
Some stocks move 1% a day but some move average of 3%. More move means more money. These kinds of stocks you should trade not the low move stocks. Stocks that move 3-4% average daily will surly move 9-10% during earnings season. Trade them you will make more.
4. Trade Small Floating Stocks
Float is the number of shares available for trading of a particular stock. Floating stocks are stocks that retail investors can trade not the one that are held by the management or by the owners.
Opposite of Floating Stocks is Closely-held Stocks. Closely-held Stocks are owned by insiders, major shareholders (management) and employees.
A stock with a small float will generally be more volatile than a stock with a large float. They will have small liquidity and wider bid-ask spread. However during earning season these stocks will find good liquidity.
Low float stocks will move big during earning result day. They will most probably break their usual support and resistance levels.
5. Wait for the Right Setup
Once you find the right stock to trade chances are that it may have already factored in the market experts view in their pricing, but they will not try to break the support and resistance levels. Once the result is out they will do. So do not worry about small volatility before the earning day, as this is natural. One day before its result will come out you can take the position in the direction with a hedge market pundits are predicting.
What You Can Do Now?
If you are an aggressive Future trader you can do my course to learn how to hedge Futures with Options to make sure the losses are limited and profits are unlimited in correct way. After learning the strategy you will not fear trading futures as you will know if wrong your losses will not be unlimited. Fees can be paid here.
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Dilip Shaw, Founder
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