The challenge of trading around quarterly earnings reports
When I first began my trading career about 15 years ago, I had no idea how to manage trades that coincided with the quarterly earnings reports of various stocks. Whenever I simply held my positions through earnings and hoped for the best, I was somehow wrong a majority of the time, and the stocks gapped sharply against me. Conversely, I found that I missed out on a lot of potential profits whenever I simply stood aside and let the stocks react and do their thing after earnings.
Fortunately, many years later, I discovered a system for trading around earnings reports that enabled me to have minimal risk, while still capitalizing on the majority of the gains. It became the best of both worlds, and that is what I want to share with you in this article, using an actual recent trade example.
How we traded LinkedIn Corp ($LNKD) for a total 22% gain around its Q1, 2013 earnings report
Throughout January and February of this year, we made two separate swing trades to buy LinkedIn Corp ($LNKD) in The Wagner Daily newsletter. The first $LNKD swing trade netted a gain of 11% over a 14-day holding period. Our second trade in $LNKD also scored an 11% gain, but over just a 9-day hold.
What’s notable about that total 22% gain with a total holding period of 23 days is that the trades were made ahead of and immediately after the quarterly earnings report of $LNKD.
In the 4-minute video below, we walk you through the Earnings Trading Technique that enabled us to lock in these solid gains, despite both trades being centered around earnings reports. For best quality, view the video in full-screen HD mode by clicking the icon on the bottom right of the video player window:
If you would like to learn more about our disciplined, rule-based trading methodology, there are two things you may want to check out: our online Swing Trading Success Course and our nightly Wagner Daily ETF and stock picking report.
Have you got any questions about our Earnings Trading Strategy? Have you got a better way you want to share? Drop us a comment below.
5 comments on “How To Trade Around Earnings Reports With Maximum Profits And Low Risk”
Swing trading is dangerous. Because the days after earnings the stock price can pop and drop for any number of reasons.
Much of the risk is removed if you wait to see the initial price reaction after earnings. When there are large “breakaway” gaps on high momentum, that momentum typically carries the stock much higher (or lower if a gapdown). This is the basis of momentum trading and you can read more about how that works in this post: http://blog.morpheustrading.com/2780
The key when buying opening gaps immediately after earnings is to set a stop below the low of the day on the first day it gaps up. If the intraday low of that day is violated, it is a false breakout and you simply execute the stop order and cut the loss quickly. But when they move in the right direction, the moves are explosive, thereby giving much greater than a 2 to 1 reward-risk ratio.
Swing trading is no more dangerous than daytrading or long-term “buy and hold” investing IF preset stop orders are always used on each and every order, which minimizes risk. But without stop orders on every trade, ANY type of trading is “dangerous.”
In the video a buy-stop was placed at $128 but LNKD opened over $140. So the buy-stop was honored at $128? I guess I’m a little confused.
Yes, that is correct, the buy stop was honored because LNKD opened AT OR ABOVE $128. This would therefore trigger the buy stop, which becomes a market order after the buy stop price is reached.
You may be confusing a buy stop order with a buy limit order. With the latter, we would only get filled at a price that is at or BELOW the $128.
Here’s a link that may help you to understand order types better: http://www.schwab.com/public/schwab/resource_center/expert_insight/investing_strategies/trading/understanding_order_types.html
If you have any other questions, just let us know.