day trading earnings

Learn one earnings report trading strategy with tips on how to not get scared of earnings announcements. In this lesson, you’ll learn what the best way to trade earnings is, how to find the opportunities, what stocks to buy and when to sell into a profit. By the end of this guide, you’ll have a solid actionable plan on how to trade earnings reports.

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Trading stock earnings announcements can be a great source of additional income that anyone can scale up and make more money. The good news is that playing stock earnings is suitable for both day traders and swing traders. So, no matter your trading style there is some meat for everyone to eat.

Read our guide on how to find good growth stocks.

Before you learn how to make money from earnings announcements let’s learn what is an earnings report and how to trade earnings season.

What is Earnings Report?

earnings trading strategy

In finance, an earnings report is a financial document published (quarterly reports or annual reports) by all public companies that give details of a company’s profitability (profit or loss) for that particular period. Check out our intraday no loss strategy!

Each earnings report includes 3 key financial statements that reveal the company performance:

  • Income statement showing earnings.
  • Balance sheet showing the expenses.
  • And, statement of cash flow.

In the USA, all publicly-traded companies are required by the Security and Exchange Commission (SEC) to file earnings reports quarterly. Since a year is divided into 4 quarters, the earning season happens only four times a year:

  • First-quarter (January, February, and March).
  • Second-quarter (April, May, and June).
  • Third-quarter (July, August, and September).
  • Fourth-quarter (October, November, and December).

Usually, each earnings season begins 1-2 weeks after the last month of each quarter. This means that the earnings season includes January, April, July, and October.

The most important metric inside all earnings reports is the Earnings per Share (EPS). The EPS is viewed by smart money investors the most important because it reveals the profitability of a company.

Check out what are the top 5 financial ratios.

Let’s see how to trade stocks on the company's earnings announcement day. More or less this is the best way to trade earnings.

What is the Best Way to Trade Earnings?

trading earnings reports

The best way to trade earnings is day trading or simple swing trading the stock market. Day traders and swing traders love stocks with earnings. However, there are some things you need to know to avoid when trading earnings.

Note* This earnings report trading strategy is the safest way to trade stocks after its earnings report.

Trading stock based on earnings can be done in multiple ways. So, there is not a per se “best way to trade earnings,” but there is a safer way to play stock earnings, which we’re going to explain in a moment.

Trading earnings like the pros come down to your ability to pick stocks with the potential to have strong earnings growth.

What do we mean by this?

Simply put, we want to play earnings only on those stocks which have exhibited a positive reaction to the company's earnings announcement.

We want to focus on stocks that have a positive reaction in relation to earnings.

Trading during earnings season can be done successfully by following 3 simple criteria:

  • Stocks that have more than 100k shares traded during earnings announcement day.
  • The stock price is up more than +5% on the day.
  • Stock price above $10 per share (avoid cryptocurrency like penny stocks).

If you keep at heart these 3 easy to follow rules, trading earnings reports will become less stressful and more profitable. Don’t put too much weight on the earnings statement. They can hide a lot of unnecessary information that can lead to analysis paralysis and subsequently end up with a loss.

Only the price pays!

Keep this as your trading mantra.

Keep your focus on the stocks that are moving big on earnings with big volume. Those are the best stocks for earnings.

See the stock chart below:

how to trade earnings reports

The best way to trade earnings is when the stock price action gaps higher. Usually, in these instances, the gap will act as support. So, a great way to buy these stocks is on the retest of the gap, if an opportunity presents itself.

We’re going to outline our favorite trading earnings strategy with rules followed by professional traders.

How to Trade Earnings Reports Like the Pros

There are many different ways of how to trade earnings reports.

Day trading earnings as well as swing trading earnings report is all viable strategies.

Trading the top stock losers is one of our favorite ways to trade earnings.

The keyword being “top losers”.

So, the stock price book value must have a significant decline. This will allow us to consistently take advantage of stock plays that get beat down massively. This is a great way to buy the stock at a discount price.

Finding the correct stock and actually executing your trades is the hardest part.

These stock plays come in both day trades and swing trades opportunities.

Step #1 Use Earnings Calendar

The first step is simple to implement.

You need to find the 5 bigger losers of earnings season.

Now, you can’t just buy any old top loser. You need to look deeper.

We look for top losers that are specifically driven lower by disappointing earnings reports. As we all know, the stock price can be beaten down even by a sound earnings report. You will understand later why we love negative earnings reports.

Now, you’re probably asking yourself:

Where can I find earnings reports?

The best site for earnings reports and our favorite earnings calendar is Stocktwits earnings calendar or you can use Yahoo earnings calendar or another favorite of our team Finviz stock screener.

trading earnings strategy

With Stocktwits earnings calendar you can scroll through the list of earnings reports. We like to look to the previous 5 – 10 days and see which stocks got beat down on their earnings. If you know a better way to filter out the top winners and top losers, don’t let this stop you and do your own thing.

Step #2 Stocks to Buy After Earnings Report

The key is finding stocks that:

  • Have disappointing earnings reports.
  • Have a negative reaction.
  • And, are now recovering.

earnings report trading strategy

The stock recovery is essential with this earnings report trading strategy. This is showing that the bad news was already digested by the stock. More often than not, the smart money is all over these earnings plays, as you can buy stock cheap at a deep discount price. Read more on the best cheap cryptocurrency.

The question we have to answer is:

How much should a stock fall on the earnings report?

We look for the biggest stock losers that have fallen no more than 5% - 10%. Preferably we want stocks in the lower 5%.

Step #3 Only Trade Stocks that Priced over $10 per Share

We try to buy stocks that are above $10 per share.

Stocks under $10 are not so accurate for trading earnings strategy. Read more on 3-day rule earnings.

You’re going to find plenty of winners and losers that trade above $10.

However, the best way to trade earnings is to explore the biggest stock losers, driven lower by disappointing earnings.

For the biggest stock winners of earnings season use the first trading earnings strategy outlined in this article.

Using the above criteria we found the first trade opportunity in ticker symbol OSH.

OSH had a disappointing earnings report followed by the stock price falling at least 5%. The stock price hit overreaction lows and then recovered.

See the stock chart below:

how to trade earnings reports

Not all plays are day trading earnings opportunities. Some earnings play will have different levels of difficulty to recover. That’s why having a swing trading earnings report trading strategy is helpful in this situation.

See the stock chart below:

day trading strategies earnings announcements

Other earnings play will happen before the market opens. In this situation the market gets beaten down in non-market hours and sometimes will gap up at the market open, making it harder to catch the move.

Note* We don’t want to trade in the pre-market hours due to the liquidity constraints.

Most often than not, you’ll know you have a great trading opportunity if the stock has clear and clean entry-exit points. You need to have a solid plan for entering and exiting the stock market. A good tool to use is google trends to predict the stock market.

While this guide is helping you how to read an earnings report, we have plenty of trading strategies in our blog that can help you with entering and exiting the market.

Some people trade based on their gut, which is the wrong approach.

The reality is that many stock traders can’t make consistent profits because they don’t have a definitive plan and the discipline to stay the course.

Let’s see what is the best way to buy stocks before a company announces its earnings.

Pre-Earnings Options Strategy

There is another way to trade earnings with options. Employing options strategies are a great fit if you want to take advantage of pre-earnings announcements.

The best options play for earnings is using the straddle options strategy.

Learn how to profit from big moves with the straddle options strategy.

Earnings announcements are often the catalysts for big directional stock movements, either up or down. The straddle is a neutral options strategy that profits from the big move (up or down) which is the perfect fit for trading stocks right before earnings announcements.

Our favorite pre-earnings strategy is to construct the straddle with a minimum of 60 days until expiration. This trick will accomplish two things:

  • The losing side of our straddle option can “reclaim” a decent premium.
  • Second, the winning side is maximized if the earnings deliver a follow-through in the direction of the breakout.

Final Words – Trading Earnings Strategy

Take your time and go through these earnings plays we showcase through this earnings report trading strategy guide. Once you feel you have mastered the art of trading earnings go find for yourself the best opportunities that will allow you to benefit from beaten-down stocks. Once you narrowed down your research on stock earnings plan out your entry point only after you see a clear sign of market strength.

The reason why our trading earnings strategy works are that when a disappointing earnings report comes out no one knows how to value it so they have to overreact to it and retail traders sell their positions. This in turn creates our oversold opportunities from where the stock price bounces.

The simplest way to keep this in mind is to think of the initial reaction to earnings as an overreaction.

So here’s what you have learned:

  • The best way to trade earnings or the safest way is to focus on post earning winners.
  • The best way to buy stock cheap is to focus on top losers that meet our 3 criteria.
  • Entry when the stock price shows clear signs of strength.
  • When to enter and exit day trading.
  • Stock price above $10 per share.

Thank you for reading!

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With over 50+ years of combined trading experience, Trading Strategy Guides offers trading guides and resources to educate traders in all walks of life and motivations. We specialize in teaching traders of all skill levels how to trade stocks, options, forex, cryptocurrencies, commodities, and more. We provide content for over 100,000+ active followers and over 2,500+ members. Our mission is to address the lack of good information for market traders and to simplify trading education by giving readers a detailed plan with step-by-step rules to follow. 

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