Earnings season is here, but the unfortunately right now after spending most of the year climbing, the stock market seems to be in a free fall that is erasing much of the year’s success. What’s the best strategy for trading this market? The best action may be to make no play at all.
If you’re looking to capitalize on some of the low prices as stocks continue to plummet, read on. Here’s a look at three things you need to keep in mind.
Three-Day Earnings Rule.
Stocks always gap up starting around the day before an earnings call is due to drop. You should keep track of these dates on your calendar so you can be ready. When those early gains are made, plenty of sellers sell off before the earnings call to capitalize on the rise before actual news hits.
Most hedge funds love to sell on the second day right after an earnings call, which leaves many small traders trying to catch a knife that’s falling. Avoid this pit trap by being ready for your stock before it starts to gap upward. Always be willing to bail before the earnings call if you feel as though you’ve hit your targets. Don’t get greedy.
Price Action Means More than Earnings.
Price action on stocks always means more earnings than the news itself. Fundamental analysis versus technical analysis shows us that if a company has good fundamentals, it will probably recoup this temporary loss. Buying the loss and then selling when the company has turned a profit is a great way to play the earnings season.
You’ll be holding over a more extended period for these stocks, so be comfortable with a swing trading strategy that looks to hold for at least a few weeks. Markets always trade in the future, and we don’t know what the future is going to be, but the price action still beats the earnings.
Swing Trading can be Hard During Earnings.
Swing trades are a reliable way to make cash if you’re fluent in the stock market. But they’re hard as hell to perform during earning season because stocks are right on the edge of the unknowable. Holding a stock into earnings season is a gamble, rather than a trade. That’s worth repeating. Holding a stock into earnings season is a gamble rather than a trade.
If the earnings are good, the stock could still go down on other news. It’s too risky to hold these stocks into earnings season, so be careful. Always know your company’s financials before you buy-in a swing trade since that will give you a good idea of the direction the company is headed. Day trading is perfect for the earnings season since you can hop in and out of trades in a matter of minutes.
That’s all it takes to earn the rest of the day off. Quickly buying or selling on earnings can be a reliable way to make money, but keep in mind you should be well seasoned when it comes to day trading.