How to Swing Trade Earnings – The Earnings Flag
In the fifth video in our free swing trading course we talk about trading earnings and our top 2 strategies to make money around the time a company delivers an enormous earnings beat.
One of the favorite strategies to play big earnings beats by top swing traders is through trading a bullish chart pattern called the earnings flag.
After a huge earnings beat, the earnings flag chart pattern often develops. Especially if the earnings beat and raise meets all the criteria in the earnings eruption videos.
The earnings flag is one of the best swing trading setups in the market. The earnings eruptions strategy is more of a day trade but an earnings flag is a trade that is normally held for a few days or longer. We find these a lot in our own trading and for customers of the weekly and daily alert.
The earnings flag is a sideways or sideways to lower consolidation after a big move right after the earnings release. The move higher after earnings may last a day up to several days or more. Usually, the big move higher is over with within a few days.
Then the price generally starts to make lower lows on a daily candlestick chart. And then we look for a consistent downward slope to the pullback develop over a few weeks. Ideally, I want to see the consolidation (flag portion of the pattern) last four weeks or longer.
We should be able to draw a line connecting the highs in the downtrend (this is called the “downtrend resistance”) and have several touches or near touches of this line as in the example below on COHR – a great earnings flag we featured to customers earlier this year.
After this swing trading setup is featured on the site you would just click the chart each day. When you click the chart the latest chart comes up with the downtrend resistance line already drawn for you. You can see when the entry signal is reached with a quick glance each day.
The entry signal occurs once the price closes above the short-term downtrend resistance. After the price closes above it, we put a market order to buy for the open the next day.
This makes it very easy to play this setup whether you work full time or not. You would be surprised how often you get a good entry price just by buying the stock at the open the next day with a market order placed after hours.
Then once the order fills you can put a stop about .5% below the prior low on a daily chart. Or if there is a confirmed uptrend support, as in the case of COHR, you could just cut losses if it closes below the uptrend support if it goes the other way.
Once we are up 4% to 10% you can sell some of your shares and put in a stop loss around your entry point. We like to find the nearest support on a 10 minute chart below our entry and place the stop a few cents below that point. As always, its critical to get in near the entry point.
As the old saying goes – “You chase, you lose”. I find that to be true in general. The one exception is if the price goes through the technical entry point on massive volume with a very big move that day.
In the case of COHR, we had a real nice more horizontal consolidation rather than a sharp descent in the flag. And we had a real nice fibonacci retracement of the move from around $140 to $200. Projecting this from the low in the flag, $180, would give you a target of nearly $240.
In the most recent chart we can see that COHR easily reached this more aggressive target several weeks later. The advantage of trading stocks with rapidly improving fundamentals is that you can get big moves over a long period of time like this while you do other things and spend a lot less time trading.
By using technical analysis, we can enter at a point where we can enter the trade very near a firm support as its breaking out of a flag in this case – setting up a great risk/reward ratio. This is one of several very bullish technical patterns explained more on the site.
Earnings flags are a favorite of top traders and a great swing trading strategy. We actually have another real nice earnings flag breaking out now on our site for valued subscribers.
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