The Earnings season is an important period in the financial market. It occurs when most of the companies in their S&P 500 index publish Quarterly results.
Season is happening Four times a year in JanuaryAnd the AprilAnd the JulyAnd the October. We have written in detail about the earnings season in this article. As you can easily imagine, these periods are really interesting for traders as they can bring huge profits using the correct layers.
Actually right. That is why in this article we will explain The best season for earning trade strategies to use.
What is the earning season?
publicly traded US Companies are required by law to publish their earnings data After every three months. The aim of these disclosures is to provide shareholders with information about their operations.
The three-month timeline is highly controversial. Some stakeholders believe that quarterly results bring short term in corporate America Allowing companies to focus on short-term profits. Some companies are often not willing to make long-term investments because doing so will have an impact on profits.
It is usually the earning season It is characterized by large fluctuations in the stock market. This has been happening ever since Companies tend to provide more news about their operations and future directions.
The The earnings calendar is an important tool It is used by traders and investors. It is mostly provided for free by leading websites and brokers like Fidelity and Webull. Earnings calendar provides a Corporate schedule whose results will be published.
Related “ How to use the economic calendar
The earnings calendar consists of: Three main parts. First, she has Date When the company presents the results. Since companies do not have a specific time when posting, the calendar usually defines the time in terms of before being put on the marketAnd the normal sessionAnd the long hours.
Pre-market publishers are companies that publish their results before the market opens. Companies publish regular sessions during the regular session. finally, Post-ordinary publishers They are the ones that announce their results After the market closes.
Secondly, the calendar contains a Past, prediction, and exact. The previous numbers are revenue and earnings per share. The forecast is what the analysts expect while the exact number is what the companies publish.
The Third And the last is obvious: the name of the company and the symbol that you have to look for in your software to make deals.
in most cases, Stocks show some unique patterns before publishing their results. In the run-up to the company’s earnings, some stocks may be in bullish momentum. This occurs when investors expect a company to post strong results.
For example, if Morgan Stanley posts strong results, there is a chance that Goldman Sachs shares could rise sharply in the run-up to its earnings. This happens in other companies that have a close similarity.
Related “ correlation in trading
In other cases, when a company like Meta Platforms posts poor earnings, there is usually a high probability that Alphabet will also post poor results.
Earnings season is usually marked significant market movements. These moves are caused by the important news that companies release during their earnings.
There are three possible ways to trade stocks after earnings. Or not, Some stocks are heading to a parabola When companies publish their results. This happens when the company publishes Strong results and future directions.
Second, some stock’s end Steep decline when they publish their results. This happens when companies Weak publication results and directions. Sometimes, the stock can sink even after publish Powerful results. This usually happens when a company provides poor guidance.
Third, some stocks tend to consolidation when they post their earnings. Such consolidation occurs when a company posts mixed results.
Best earnings trading strategy
Traders use many methods of trading during profits. In this section, we will explain the best trading strategy for the earnings season. It is based on the concept of pending orders.
For starters, there are two types of orders in the financial market: Market and pending order. A market order is an order to be executed at the current price.
On the other hand, prof The pending order is This is it It is implemented at a predetermined level. Examples of such orders are limit and stop orders. A buy limit order is placed below the market price while a sell limit order is where a sell trade is placed above the current price.
How to use pending orders in profits
The use of pending orders is Mostly a risk free trading strategy For trading in earnings season. As mentioned above, traders use the earnings calendar to determine which companies are about to release their earnings. Also, we’ve noticed that Companies tend to either go vertical or sink after publishing their results.
Therefore, the trader can open a bracket order before the market closes. For example, the chart below shows that Meta Platforms stock was trading at $130 before it published its results.
In this case, the trader will open a sell stop at the level below $130 and a buy stop above the level. In our example, we set a sell stop at $124 and a buy stop at $138.
After setting these levels, you should place the stop levels. For a bearish trade, you can place take profit at $115 and stop loss at $138. On the other hand, for a bullish trade, you can place take profit at $145 and stop loss at $120.
After doing this setup, It will be your job to wait. In our example, we see that Meta Platforms stock has crashed after earnings. Therefore, your bearish trade will be profitable while the bullish trade will not be triggered.
Other profit trading strategies
There are other trading strategies that you can use to trade profits. For example, you can use a strategy known as fadingAnd the where are you Then wait for the profit gap Take the opposite direction.
For example, as shown above, the stock cleared the lower gap and resumed bullish trading. The only problem with this approach is that It tends to be relatively risky Where the stock can continue to rise or fall after earnings.
In this article, we have looked at the concept of trading company earnings. We’ve made it clear The best and risk free trading approach To use when trading these results. The biggest risk when using the pending order strategy is where and after which the trade is executed sharp reflection is happening.