Avoid Earnings Mistakes

Hey 5-Star Trader,

We are well on our way through the first earnings season of 2022! And, wow, what an eventful way to open up the year.

While we can count on probably more volatility heading our way, there isn’t a lot else we are able to predict going forward. However, through my time trading earnings reports, there are a few tips and tricks I’ve picked up along the way that helps me avoid making mistakes.

My Top Three Earnings Tips And Tricks… 

1) Take a historical approach 

Many people try to enter earnings trades based on what they anticipate the next earnings move to be. While that is important, arguably what is more crucial is taking a look at the historical data of that ticker. Studying the behavior of a stock in its last few quarters could give you a more accurate picture of what you could expect in the upcoming report. 

For example, if a stock price gapped up 11 times out of the past 12 quarters once their report was released, it is reasonable to think there is a strong possibility it will do it again. Though it isn’t a guarantee, you have a much better chance of anticipating how it will act if you studied its historical data.

**My favorite tool for this is my earnings Hot Zone indicator, which shows you multiple quarters of data, without having to calculate this on your own!

2) Pay attention to consumer behavior

Consumer behavior is difficult to predict and changes all the time. What might have been popular at one point, could certainly become unpopular by the time you are ready to trade an earnings report. Before picking a ticker, ask yourself, “Is that company or product still in line with what consumers want?”

3) Be mindful of market behavior and adjust your risk

As some of you may know, managing risk is my golden rule for all of my tradings, especially on my earnings trades. Often trading an earnings report happens overnight and there is no opportunity to put on stops. These result in “win or lose” situations, which can be dicey during highly volatile times in the market. The rule you should live by is never to trade more than what you can afford to lose.

A volatile market can be scary to trade, but if you can identify a game plan and stick to your rules there are still opportunities presenting themselves, especially during earnings season. Happy trading!

-Danielle =)
For more information about how Danielle trades earnings reports, including her “run into earnings” strategy, take her comprehensive “Quarterly Profits” course.

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