When you talk to people about trading earnings announcements, there are generally two camps of thought on the practice: those who think it’s a wild west and too risky to trade, and those who think there is always an opportunity, no matter what the possible outcome may be. Let’s explore the latter.

Earnings Announcements Trading Opportunities

The four biggest potential opportunities and approaches for earnings trading include:

  1. Putting on a position before the earnings release in anticipation of a large move (up or down) after they have announced.
  2. Putting on a position before the earnings release in anticipation of very little or no move after they have announced.
  3. Identifying two highly correlated stocks, and, after the first one release its earnings, put on a position in the second stock — based on the results from the first stock – before it releases its earnings.
  4. Wait until after the stock to announce earnings, and then place the trade based on its results and your strategy.

Earnings Announcements Trading Factors

In addition to your trading approach, there are other important factors to consider:

  • Market Capitalization — Do you want to watch large, medium or small capitalization stocks? They each act differently in various market and can react to earnings announcement differently.
  • Volume — Some people like to trade small quantities in very unknown or illiquid stocks, others like very liquid stocks. What is your strategy?
  • Variety — Do you stick to one stock, one industry, or spread your trades across multiple stocks and industries?
  • Leadership vs. Ledger — Some people focus on what the CEO may say on the conference call while others focus more on the earnings numbers themselves.

Believe in Your Trading Rules

No matter how you trade earnings, make sure that you believe in the rules or system you are using. Don’t be wishy-washy. Trading earnings can be tricky, but if you practice and stick to a system that you are comfortable with, you can be a very successful trader – with exciting trading opportunities four times, four quarters, each year.