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How to play the game

Blog - How to play the game


Earnings Season - How to play it

Earnings Season - How to Play It - Technical Strategy

Since i begun trading, the 1 thing that has always infuriated me is Earnings Season and the accompanying frustration that it usually brings - not least because i would take positions a few days prior to the Earnings release on stocks that would produce incredibly good results vs Wall Street forecasts and then I would still watch the stock price plummet for no good or justifiable reason. If you play Earnings reports or HAVE played them in the past - you know what I'm talking about.

The reality of adding positions a couple of days before an Earnings report - is that you're playing with Vegas odds. Vegas odds are NOT attractive. Too many times we see companies crush it, but the price still tanks and too many times have I seen near misses, and the price moves up in cruise control. There is no real way to predict how the market will react to both the Earnings and the Guidance for the following quarter. It's gambling... pure and simple gambling and if you like gambling - you're probably better off playing Bingo or taking a trip to Vegas, because you will NEVER be a successful Trader playing Earnings reports. Sure you might have a couple of HUGE wins, but over the course of time - just like Vegas - you'll end up broke. The House always wins.

The good news is - there's a way to be profitable - the bad news is - you won't get the adrenaline rush of waiting for the Earnings results after market close or before market open because you WON'T have your hard earned money dangling in the wind hoping that Wall Street shares your optimism.

The tactic is simple - to be a profitable Trader - DO NOT enter into positions in the days leading up to an Earnings report. (i have a rule where I will not take a new position 10 days prior to the company Earnings Report)

The way you CAN be profitable is to identify good trending stocks that are reporting each day, and simply wait and see how they report and then WAIT for the market reaction and how price performs.

What you are looking for is an already trending stock that reports positive earnings across ALL metrics (or even a near miss) but yet somehow Wall Street has found a way to tank the share price down.

This is an example of the Chart I sent to my client group on the 18th January 2019.

Atlassian Corp 18th Jan 2019.png

The reason for this, is that the pull back in price offers a high value entry into an already performing stock, which now has a proven track record and offers good scope for for growth. The Wall Street gods are smiling..... and they've offered you a discount.... all you need to do, is sit back and wait for the share price to gather support at a given price level, and then buy in once the stock starts making the climb back up to the original price level and beyond (which it nearly always does) - PROFIT PROFIT PROFIT.

I have found this tactic to be insanely profitable over the last year or so (since I figured it out) - and I look forward to Earnings Season so much more than I ever did before, and there is zero adrenaline involved - because I'm in control of the trade, and Wall Street is not in control of me. If this blog finds you, i hope you try this out... because it works.

The final thing to say, if you already have long term positions running on stocks going into Earnings Season - and if they are already in good profit, then it’s perfectly ok holding through the fire - but because of the potential for a gap up and gap down that can make earnings season so volatile - there is again another factor to consider - and you should only hold if you have a sufficient buffer in place, I personally use a 10% rule so Risk Management is most definitely the order of the day - again I teach in my course the exact method to playing these volatile times.

As Trend Traders, we shouldn’t really sell off positions simply because we have an Earnings report, but it is 100% acceptable to remove your position prior to earnings if the stress it brings is too much - they can be insanely profitable if the trade goes in your favor, and are simply a function of time in the markets... they are to be embraced.... and as I've mentioned already... they can be profitable with the correct strategy.

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Sam McCallumComment