Powerful Strategies to Capitalize on Earnings Season Momentum

This earnings season has been one of the BEST ones we’ve seen in terms of trading opportunities in awhile.

This time of the year can consistently deliver A+ trading opportunities… If you know how to play them and identify them correctly.

Earnings season can be a wildly profitable time for you if you know what you are doing, so today, we will get you ahead of the curve. Let’s dive into why earnings season is such a great time of year to trade, and some strategies you can use:

What is “Earnings Season”?

First off, let’s start with the basics. Earnings season is simply the time of year when the majority of companies that are listed publicly on the stock market report their earnings numbers. This happens four times a year, or every quarter.

Stocks are usually more volatile during this time as many sectors get influenced by the reports, as well as individual companies and tickers of course.

With that volatility, comes increased opportunities for those who can navigate the crazy waters. Investors and traders of all time horizons pay close attention to earnings results. Every week you should be checking Earnings Whispers and to know what stocks are reporting earnings, ESPECIALLY if you have a position in the name.

Why Trade During “Earnings Season”

As momentum day traders and swing traders, we want to be in liquid and trending stocks. With how choppy the market has been in the last few weeks, it is CRUCIAL to be looking for these type of stocks that have a strong catalyst. These stocks will go on strong trends regardless of what the overall market is doing. 

Strategy 1: Earnings Breakout (Day Trade)

This is one of the classic, most powerful and bullish patterns that occur following earnings reports. 

Whenever a stock reports strong earnings numbers, investors and traders will look to get involved in the stock the next day when it gaps up. Sure, it may seem like investors are chasing the gap up, but you have to think about it from their perspective. Once good numbers are reported and guidance increases for the year for the company, investors don’t care about paying up a few points the next day since they are looking to hold this stock for a few months to multiple years. 

As traders, we can ride that wave of new money inflowing into the stock the day after solid earnings beat.  

Take a look at $OKTA here for example. The company reported positive earnings on Thursday, March 2nd, and then gapped up the following day. 

Knowing that there is a lot of ‘hype’ around the stock due to the positive earnings the following day, we can look for intraday opportunities to long the stock the next day at the open and ride that wave of new money and volume coming into the stock. 

You want to look for dip-buying opportunities AFTER the morning hype has settled out. You don’t want to chase the morning action at the bell. Wait for the dust to settle, and long the stock on a dip knowing that the sentiment is still positive and bullish in the long run just like in this example.

Strategy 2: Earnings Breakout (Swing Trade)

We are taking the same concept as strategy one above, where we are looking for intraday opportunities to the upside after a solid gap up and a strong earnings report… But now we are looking for SWING TRADE opportunities.

You can also play a variation of this swing trade strategy following a big gap up off of positive earnings. You can wait for the stock to settle out for a few days following the report, build a base, and take a long position 2-5 days after the stock reports earnings and fades.

Take a look at this example of $NVDA here for a more detailed breakdown.

Strategy 3: The Gap Fade

The first two strategies were centered around LONGING the stocks out of a gap, but now we will talk about SHORTING then, taking advantage of profit taking at the open. 

Whenever a stock like $META below has a big gap out of positive earnings AFTER being down well over 60%-70% over the past 2-3 years, selling pressure can overwhelm new optimistic buyers.

On a stock like $META, investors have been beaten down for the better part of 2 years, and finally, see some gleam of hope to recover their losses. So many will look to sell while they can.

Think about it from the perspective of a bagholder. Pretend you longed the stock for a long-term hold at $300. If it went all the way to $95, then bounced to $200, wouldn’t you potentially look to sell? Especially in these market conditions? That is the battle many investors have in their minds in charts like these, and we can take advantage of that selling pressure by shorting the gap. 

On the flip side as well, many investors may have long the dip on a chart like $META at $95-$100, and now are up 100% after the earnings gap, so they will look to sell as well.

We have two strong reasons for selling pressure to ensue following the big gap up on $META, and as traders, we can take advantage of that psychology and selling pressure by fading the gap for 1 day or multiple days.

If you want to learn more day trading and swing trading strategies like these taught in live classes, check out our next LIVE trading boot camp!

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