A Winning Daily Routine during Earnings Season
Daily habits are critical for any endeavor in life. Whether it’s staying healthy, improving one’s career or being a profitable swing trader.
Today we will be discussing what we do each day to prepare to profit during earnings season. Generally the best time to profit during the quarter.
My hope is that this will help you develop your own trading discipline. So grab your favorite beverage and take some notes to help fine tune your own successful daily trading routine.
This is the best time of the quarter and year to be disciplined with a great daily routine.
Why Earnings Season is So Powerful
So much information is given in an earnings report that helps investors to make buy and sell decisions. So much so, most investors plan to make many investment decisions after an earnings report. Most every other news report pales in comparison.
It’s all conjecture and speculation until you actually see results that executives have to sign off on. How much revenue did the company generate? What are the earnings if any? What about cash flow and margins? It all comes out in an earnings report.
Assuming regulation is solid in the company’s home country, we know there are serious penalties if the company “cooks the books”.
This is why stocks can move so much on earnings. Especially when earnings are surprisingly good or bad. Everyone is watching and waiting.
After trading for many years, we have seen that the best catalyst tends to be an earnings catalyst. A positive pre-announcement is a good catalyst also but the actual full blowout earnings report tends to lead to a little higher win rate for our strategies that involve a catalyst.
This may be due to the fact that so much more important information, including margins and change in guidance, are revealed in the full earnings release that is later filed with the SEC.
It All Starts with a Great Watch List
So let’s get into the steps we take daily during earnings season. The first step is to create a great watch list.
Each day during earnings season we go through our momentum screens sometime after the market close.
Great traders will tell you that relative strength is probably the best indicator of them all. So looking at all the stocks with huge buying demand, especially those that also have a great multi-year chart, is a good start.
From these screens we look for stocks in the most bullish pattern – a high tight flag. We put these on one of our watch lists.
The chart pattern has very specific criteria. The rules are written down and we make sure everything checks out when we analyze the chart of each stock returned in the screen. (Its important to do the months of research ahead of time to ensure you have a great strategy to begin with.) We can also check important fundamental factors well before entering a trade by doing this watch list.
This is not a market where 2nd tier opportunities or “close enough” will cut it. It has to be ideal. Since the potential hawkish Fed pause pivot on Wednesday, we are recognizing an even higher bar that we should set at this point. More rate cuts in the near future are coming into question.
Pre-Market Routine
One of the first things we do is check existing positions for new news or important technical signals. We often just sell a trading position if there is significant negative company news. After all, it’s a short term trade and there will be plenty of other ideal trading opportunities. The best loss is a small loss when trading.
On the flip side, very bullish company news could cause the stock to gap over our profit target. A high quality problem where we often take partial profits and let the remainder run while raising the stop on the remaining shares.
We also get out of existing trading positions within a couple weeks before earnings. It’s important to know when your stock is reporting earnings.
Check Market Conditions Pre-market
One of the first things to check is the futures and the bond market early. The 10 year treasury starts to trade at 8am EST and we can quickly check for any changes to this benchmark yield by typing the ticker $tnx into stockcharts.com. Other charting platforms may have a different ticker for the benchmark 10 year treasury yield.
A big change in the 10 year yield can especially affect great growth stocks. This is because the 10 year yield is often used as a “risk-free” comparison to know how to value stocks.
We also want to check the VIX volatility index and current market trend along with the futures. If the market averages drop enough from the high of day or are down enough from yesterdays close, the win rate tends to fall. However, a very big earnings catalyst tends to give the stock a lot more resilience outside of mega cap tech and lower priced stocks.
So we want to see the VIX at reasonable levels and the overall market trend to be good enough. Usually this is the case but not always so we want to be aware if the market is gapping higher or lower and the news that is driving that. We also want to be aware of any big news that is coming up that day and when the Fed rate announcement, jobs numbers and inflation numbers are due to come out among other key announcements.
Breakouts tend to be weaker starting a few days ahead of these announcements. So we need a better stock with a stronger catalyst just ahead of these announcements to consider a trade.
Checking for Stocks That Could Trigger an Entry that Day
Another step pre-market is to go through our watch list each day before the market opens to see if all the factors are present to support a strong break out. Again, these are written rules that we can check, one by one. Of course, you need to the research ahead of time to know which factors really matter.
If all the factors are present including a big catalyst, then we identify the technical entry point, stop loss and at least the first profit target. This can be partially based on support and resistance levels on a daily and/or weekly chart over the past few years. We can also use historical tendencies out of the technical pattern we are swing trading to come up with our first profit target.
We refer to our account risk and single stock risk parameters to calculate position size ahead of time. We then make sure the price alert is set so we will be notified if and when the price reaches the entry point.
We then can just wait for a price alert to be sent to our smart phone via text. Or we will hear the alert in our trading platform if we are at our PC or laptop using our trading platform.
The Importance of Patience
Of the stocks that trigger an alert, maybe 20% will have all the factors present that day to lead to a high win rate historically. So we go through our checklist after each price alert is received. If we did the checks pre-market, we can get into the trade more quickly.
If everything checks out, we enter the trade with a market order. Making sure we get in close to the technical entry point. If we are too late and buying too far above the technical entry point, we can just wait for the next opportunity which will surely come our way with a good daily routine.
The higher quality stocks we trade do not require hot keys, lightning quick reflexes or more complicated orders like you need with penny and low quality stocks. Stocks in multi year uptrends above a certain price level with enough volume are easy to get in and out of very near the current price. No hot keys or level 2 reading necessary with our swing trading strategies.
Ideally, we enter an OCO order for the first profit target and a stop loss for the remainder we want to let run. Right now it’s best also to wait for a 10 minute opening range breakout. Especially on lower priced stocks.
Where to Start
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The next trading boot camp starts next week. Only a handful of traders will be allowed to join so we can keep the training more personalized.
Now is a great time to learn these strategies. Now through June is normally the best time of year to swing trade using our top strategies. And earnings season is now in full swing with gap and fade mega cap tech now behind us.
What to Look for in an Ideal Swing Trading Opportunity
How We Trade Elite Earnings Gap Trades Like the Ones That Will Come Up in the Weeks Ahead
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