Earnings are one of the strongest catalysts in trading. This catalyst will have the attention of investors on all time horizons. Long term investors, swing traders, day traders, and everyone else will likely be entering and exiting positions at the open after quarterly earnings are announced. You can get strong trends for day trades and swing trades to both the short and long side. Here are some tips for day trading stocks reacting to earnings at the open.
Wait for the Trend to Form Before Entering
The first five minutes of the open after a stock has had earnings are usually an incredibly volatile period. These stocks will usually trade well above their average true volume and sometimes outside of its typical daily range. It's usually best to wait at least 5 minutes before entering a stock, to give it some time to show you its trend and range. If you're a newer trader you may want to wait even longer, because you have to act very fast and decisively during the first 30 minutes.
Be Aware of How A Stock Typically Behaves on Earnings
You don't want to be apart of every earnings breakout or breakdown. Some stocks will gap up and then fade on earnings. Others will gap down and then rebound. Check the daily of the past couple years on stocks the morning before the open with this particular catalyst. If it has history of having follow through momentum after earnings, it will increase the probability of the trade playing out. For more information on how to evaluate a stock's proability to follow through, check out this article.
Always Keep Shares for the Bigger Move
Earnings trends will usually go on for hours and will sometimes even turn into swing trades. You will usually get the strongest trends with a gap up or down with an earnings catalyst. If the stock hasn't made a move well beyond it's average true range, you will almost always want to save some of your shares for a bigger move. Try to hold a piece of your shares until the point that you would take a position on the opposite side of your trade.
See how we evaluate an earnings play in this video:
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