Welcome to the Traders Laboratory.

Trading Psychology How do we learn to conquer our fear and greed? Discuss the mental aspects of the game.

Old 08-08-2017, 12:46 PM   #1

Join Date: Jun 2013
Posts: 27
Ignore this user

Thanks: 0
Thanked 3 Times in 3 Posts

Earnings Season: Know When To Hold Em, Know When To Fold Em

It's earnings season! This is when corporations will report their quarterly results and usually issue future guidance for the company. This is also a period when stocks will often have big price swings after the earning announcement. For many traders and investors it can be an exciting time to trade, but danger lurks when market participants hold stocks into an earnings announcement.

Just yesterday, I closed out a long trade in Dean Foods Co (NYSEF) at $14.99 a share. The reason I exited the position was because the company was scheduled to report earnings this morning before the opening bell. Unfortunately for me I lost 0.11 cents on the Dean Foods trade as my entry was $15.10. I know, nobody likes to take losses on trades, but sometimes that is the best move to make ahead of an earnings announcement. If you take a look at the reaction today in Dean Foods Co today after earnings it is not pretty. In fact, DF stock is trading lower by $2.80 to $12.17 a share today after reporting earnings. Believe it or not, this is a decline of nearly 19.0 percent on the day. Now my 0.11 cent loss looks like a victory after this terrible reaction to the Dean Foods Co earnings report.

Now to be fair, sometimes stocks can rocket higher after earnings reports. Many traders will often celebrate with excitement if they hold a stock and are on the right side of the earnings reaction. Just think how I would feel if Dean Foods Co was trading higher by $3.00 after I sold it yesterday, probably not very good. After trading for so many years I have realized that trading earnings is very much like gambling, the odds are simply not in my favor to make that bet. So I have accepted the fact that holding stocks into earnings is extremely risky and simply not my style of trading.

If you do decide to hold a stock into an earnings announcement it is best to hold a low beta stock. A low beta stock is an equity that is less volatile, will historically move in a smaller and tighter range. Earlier this earnings season I held Bank of America (NYSE:BAC) into earnings. The stock traded down about 0.30 cents before ultimately recovering and making new highs. BAC stock is a low beta equity and I was actually in the money on the trade before earnings, so there was not a lot of risk of a major decline. Either way, holding stocks into earnings is extremely risky, every trader and investor should understand the odds are no longer in your favor ahead of a corporate earnings report.

Nicholas Santiago
inthemoneystocks is offline  
Reply With Quote


Thread Tools
Display Modes Help Others By Rating This Thread
Help Others By Rating This Thread:

Similar Threads
Thread Thread Starter Forum Replies Last Post
Buy and Hold Approach to ES toil E-mini Futures Trading Laboratory 1 01-12-2016 12:55 PM
Tis the Season to Look At Gold & Oil Prices! ChrisVermuelen The Markets 0 06-15-2013 11:15 AM
Earnings Season jpennybags Trading and the Markets 3 06-30-2011 03:15 PM
Daytraders - Do You Trade Over the Holiday Season? Cory2679 Trading and the Markets 0 08-27-2010 09:56 AM
Earnings season is upon us: fundamentals take over notouch Market Analysis 1 04-10-2007 03:10 PM

All times are GMT -4. The time now is 04:36 AM.
Copyright ©2000 - 2018, Jelsoft Enterprises Ltd.
CS to VB integration by DeskLancer
©2006-2011 Traders Laboratory, All Rights Reserved.