How to trade during earnings season? Earnings season is an important time to determine the future direction of the markets. It is also important for investors since they can follow the performance of the companies in which they have invested or of those they wish to add to their stock market portfolio.
In this article, we define earnings season, explain how you can follow the most important publications, and above all, detail the reasons why you should trade – or avoid trading – during earnings season.
What is earnings season?
Earnings season usually takes place in January, April, July, and October, which correspond to the fiscal quarters of the majority of companies. It is during these times of the year that listed companies present their financial statements showing their performance during the previous quarter.
The most important information that investors can't get from any other source is often found in a company's earnings report like its net income, sales, and earnings per share.
This is why the earnings season can have a significant impact on the behavior of investors and on the value of the shares of the companies concerned.
Investors can either trade stocks based on their performance, make medium- or long-term investment decisions (invest in a company or close a position), do nothing (hold their positions so that they stabilize or improve over time) or even anticipate potential results by entering into a position before the publication.
In addition to the publication of its results, a company can also make an “ earning call ”. This earnings call is a conference call, or webcast, where the company discusses its financial results.
This is an important event because investors' decision-making processes may be influenced by the information provided at these conferences.
Investors pay attention to how management presents key facts, as well as how it discusses its growth prospects and answers analyst questions at the end of the conference call.
How to follow the earnings season?
To be able to take advantage of the results season, you need to be able to follow the publications!
That's why you should always have an eye on an earnings calendar so you know in advance which week's releases interest you, but also which ones are most likely to move the markets.
There are several reliable sources that will allow you to use a calendar of company publications such as that Nasdaq, CNBC, BFM Bourse, or TradingView.
Most French or international news websites or news channels will also cover the biggest profit publications. Many detailed analyzes will also be available after the publications in the major economic and financial media.
You can also follow the earnings conference calls we discussed in the previous section on certain news channels. This will allow you to gain more insight into the company's current performance and future plans to support its growth.
This call could allow you to determine what you should do with your existing and potential investments.
What are the pros and cons of trading earnings season?
The Benefits of Trading During Earnings Season
The main advantage of trading during earnings season is that earnings season can lead to large price movements that you can take advantage of if the market moves in the direction you expected.
Also, if you use financial derivatives, you can profit from rising and falling prices. Thus, it is possible for you to take advantage of good surprises such as disappointments in the market following disappointing or worse than expected company results which lower the price of the shares concerned on the stock market.
The earnings season can also accommodate different trading styles, such as active styles ( scalping, day trading ) or less aggressive styles ( swing trading ), and different types of trading (trend trading, breakout trading, or momentum trading). In addition, you can also use several financial products depending on your strategy and your objectives.
The Risks of Trading During Earnings Season
One of the risks of actively trading stocks during the season is that volatility is very high. So your losses could be significant if the market moves against you, especially if you use leveraged products.
Additionally, many novice traders enter and exit the market without having any real trading strategies. Beyond being one of the biggest mistakes in the stock market, the uncertainty and volatility of the markets during the earnings season intensify the negative consequences of such behavior – especially since the psychological pressure is great, which often leads to making emotional mistakes.
Our tips for trading well during earnings season
For ActivTrades, the most important thing is to be well prepared for the earnings season, whether you want to actively trade it or simply rebalance your portfolio. So take the time to do your research beforehand to find out how to react to the announcements of results that will be made.
Also learn the jargon associated with earnings announcements, published financial figures, and earnings phone calls, so that you fully understand the meaning and implication of the data and information available on the current and future growth of the companies analyzed.
If you want to take advantage of short-term volatility, remember that price movements can be sudden and of great magnitude. It is therefore important to always apply your risk management rules and follow your trading plan carefully.
The ActivTrader online trading platform, for example, offers unique tools like a progressive trailing stop-loss and a pullback stop order to allow you to improve your timing and position management.
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Disclaimer:
All of our information is, by nature, generic. They do not take into account your personal situation and do not in any way constitute personalized recommendations with a view to carrying out transactions and cannot be assimilated to a financial investment advisory service, nor to any incentive to buy or sell instruments.
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