Depending on his or her time frame, every trader obviously has a very different approach to earnings season. Macro traders/investors do not typically adjust their positions heading into earnings reports--there are four per year after all. Swing traders could potentially take stock into earnings, but many choose to hedge with options or trim core positions. For momentum traders like myself, we don't take stock into earnings reports, but earnings season is the most opportunity-filled time of the year for us. We thrive when momentum is greatest and emotions are extreme, and those are exactly the conditions created by earnings.
The first step towards success during earnings season is gameplanning. You MUST have a set daily routine where you look at stocks with upcoming earnings, especially the stocks you frequently trade. It seems like a simple thing, but I can't tell you how many times I have seen an inexperienced trader hold a stock or trade a stock without knowing about upcoming earnings.
The second step is having a plan in place for trading stocks after earnings. The flipside to increased opportunity during earnings season is elevated risk. You should have a system in place for trading stocks after earnings in a calculated manner, and that is something we focus on heavily in my Momentum Trading Course and Mentoring Room. You have to understand how to play gaps in the context of the chart and recent price action, and how to set reasonable targets and prudent stop-losses for post-earnings trades.
An example of a post-earnings stock I traded today was UniPixel (NASDAQ:UNXL). I have been focusing largely on the 3-D printing names, but when a potentially volatile stock like UNXL reports earnings it is definitely a focus for me. First, as I always do I did my homework and knew that UNXL reported after the bell yesterday. I had an inclination that today it was going to be my go-to stock. So far today it has been the best trading stock for me. I came in long some and traded in and out of it for the first ½ hour of the day using my calculated system for entries and exits.
Going back to the 3-D printers, Monday, 3-D Systems (NYSE:DDD) reported earnings pre-market (and its 3-for-2 stock split went into effect). Because I had become familiar with this stock over the last several months, I had some notions of how I was going to play it on the big game down. These 3-D printing names, despite their speculative nature and lofty valuations, have been extremely popular over the last year and everybody wants in. The earnings report was weak, but it's really the more distant future of 3-D printing that everyone is really excited about. I had a feeling there would demand on the gap down, and DDD provided a tremendous move off the lows.
Again, I consider myself to be a very prepared trader and one that looks forward to news catalysts such as earnings or upgrades and downgrades. Doing that little bit of extra homework and writing down the dates for earnings of your favorite plays will not guarantee that you will make money, but you will sure feel better being prepared and knowing beforehand. The next step is having a calculated plan for your trading, which is what we teach and coach in our Momentum Trading Course and Mentoring Room.
(In this video: I go over actionable chart set-ups in UniPixel (NASDAQ:UNXL), Five Below (NASDAQ:FIVE), and then on to the 3D Printer space, with 3D Systems (NASDAQ:DDD), Stratasys (NASDAQ:SSYS), and the recent public addition, ExOne (NASDAQ:XONE).)
*DISCLOSURES: Steve Levay long XONE, PCLN puts, FIVE calls. Traded but flat UNXL, DDD, SSYS, WDAY, JAZZ, PCLN calls.