Stock earnings date
is very risky event for stock traders
Check these free stock chart examples
of reactions to stock earnings
Stock earnings are regular events on stock markets. Each company reports 4 times a year its results. They can be good but also bad. They can surprise investors positively and also negatively.But much more important is that nobody can predict how investors will react. It is possible that investors start selling shares after very good earnings reported by company. It is very common situation. I was contacted by my client who is learning to be active investor. He wanted to help what to do with his holdings of RVBD shares. RVBD reported earnings and shares started to trade next day with huge gap down. Check this free stock chart of the situation.
Shares finished near 42 before earnings and opened near 32 after earnings. It is 24 % drop. My only advice how to handle such event is to get out immediately. But my most important advice I tell to anybody who is asking is
DO NOT HOLD SHARES DURING STOCK EARNINGS EVENT
Why ?Investors are receiving new data about company's business. They can be good or bad but most important is how these data fit investors' expectations. And it is not possible to predict reaction of investors to these data. Therefore it is very good for risk management to do not hold any shares during earnings event. Here are some more examples of bad reaction in share price after some earnings. Drops in share price are so huge that it is very risky to have some shares during these days.
I always close my trade before earnings date. It is important rule for every my
stock trading strategy.
If I will find it appealing for me after announcement I will start to monitor shares again and think about possible new setup.It is also possible that investors react positively to announcement and shares open up next day. But such gap up is not so huge as possible gap down. So the
risk reward ratio
of possible gains versus risk is not favorable. Here are examples of gap up of price after positive reaction to this event.
Another IBM gap up after earnings
And there is almost always possible to enter trade at relatively good price after earnings again.
Return from stock earnings back to Stock trading system
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