Friday, October 22, 2010

It is the Season for Extended Earnings.

Day traders should welcome earnings season with open arms as it is the season for earning big profits.  When the news of earnings comes out, sometimes the preset expectations are not met or have been exceeded, which leads to volatile moves that day traders embrace.  This is purely emotional and technical trading as the real earnings information has not been digested yet to decide the fate of the stock.

Most earnings come out before or after market hours to avoid full blown chaos that can take place on news
events.  That's why stocks get halted most of the time when news is pending during normal market hours.
Trading the extended hours can be scary to most traders, however if you keep certain key rules in mind
you should be able to make the most from these reports while trading them during the extended hours.

  1. Liquidity.  The stock must be a main stream stock that the majority of traders know; AMZN, BIDU, AAPL, etc  This provides the needed liquidity in the extended market as volumes of traders will be trading the same stock.
  2.  Manage risk by managing your trade size.  It is key to stay nimble during extended market hours as the spreads are typically large.  You cannot be caught with thousands of shares that no one wants to buy at an acceptable price.
  3. Length of trade, the addict munch approach.  As long as there's liquidity I'm going in and out of the stock at key technical levels or when the stock feels heavy when long.
  4. and most important is to be patient after the news comes out.  As a technical trader you must wait for key levels and/or patterns to form before you trade the news in the extended market.  You will find some serious and seriously ridiculous moves at first, but give it a few minutes and the direction will reveal itself.  Similar to regular hour trading, you need to be even more disciplined to trade the extended market hours.

And don't forget to keep those stocks on your day trading radar for the next day as well.  The big moves will
usually carry over from the extended hours to regular hours.  Be smart and have fun!

Peace and profits to all.

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