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How to Trade on Earnings Reports


Many traders wonder, are there any significant seasons in the market? Unlike the times of the year, when there's snow in winter and heat in summer, there are four earnings seasons when it's definitely very hot.

Periods, when season earnings are reported, bring wide opportunities for traders. This is the time when the largest American companies announce their quarterly earnings reports. This news usually triggers the stock prices to rise or fall by ten or more per cent after the release.

Such moves at price create high volatility periods in the currency pairs and enable traders to make huge profits within a short period. Want to know how to earn on expected strong movements of charts? Keep reading to learn more!

Main article sections:

When is the earnings season?

There are 4 periods in a year, called earnings seasons when public companies release their reports about earnings of the previous quarter. Nevertheless, despite most of the companies release their data during the standard seasons, some companies can do it out of schedule.

Earnings reports are usually released after the end of each quarter: In January, April, July and October. Not to miss important data release and earn on economic reports, check the calendar from time to time and mark the most eagerly awaited news in a personal calendar.


How to read the earnings reports?

Interpreting these reports is really easy and even the beginning trader can use such data for trading.

If the results of the report are positive and show that profits or sales came up higher, the shares of that company become more attractive for investors. The demand grows, more shares are bought, and prices keep up growing.

But if the report shows the profits and sales showdown, the stocks of that company fall in price instantly.

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How to profit on earnings reports?

Making profit on can be difficult in some cases, but this is not the one. Actually, trading on companies' earnings and trading on the news from the economic calendar have much in common.

The forecast about the scheduled earning figures is prepared by analysts several weeks before the earnings season starts. Analysts usually make predictions upon EPS (earnings per share) and revenue, and this information helps in predicting a direction the market is going to move in.

What happens after the forecast publishing?

The forecast publishing, consisting of estimates and expectations, works as a trigger, which sets the price in motion. If the forecast is good, it motivates the stock price to go up. If the forecast is not so good, the stock price declines.


How to make a deeper analysis of a company?

If you are interested in trading stocks of a certain company, you can always get additional info. A small tip: just search on the net the investors' relations with the company you are interested in, and you will see the earnings release, the data of previous reports and other important info.

What happens after the earnings release?

The suspense around the data release stirs up the interest to certain stocks. The bigger the difference between the forecast and the actual reading, the bigger the movement in the market it provokes.

Nevertheless, the unspoken rule tells: 'Buy the rumour, sell the fact'. That means that the price for stocks can decline after the news release, because the prices turned out to be good, and investors who bought the stocks before the release started selling them right after.


Have a look at the chart above where Tesla stocks plunged by about 10% on April 3, 2019, to get an idea on how the stock price might move on the earnings report.

The company's quarterly revenue turned out to be lower than expected and that caused an instant decline. Pay attention to the fact that the Tesla stock price was constantly rising before the earnings release.

Mind the Media while trading on earnings reports

Smart traders know that you should not only consider the company's EPS and revenue but also implement the fundamental analysis, to see the bigger picture.


Follow these points to trade on earnings successfully:

  1. Look at the traded stock performance within the last two weeks. Make a comparison of the actual performance of the price and the predictions. If the actual price is too high, be prepared to sell stocks with the news. If it is too low, get ready for buying.
  2. Find out, what was the market reaction to the previous releases. The history can tell you about the peculiarities of a certain stock price behavior.
  3. Check RSI, a technical indicator that can show whether the market is overbought or oversold. When RSI is high, that indicates the stock is overbought and is possible to decline. When RSI is too low, it signals the stocks are best for buying.
  4. Media can help you to see the bigger picture. If a particular company and its expected profit are much talked about, the stock price must be high and vulnerable to a selloff. If there are negative comments about the company, the stocks may turn out to be undervalued.
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What factors influence the stock price?

The news that comes from large companies usually influences the stock market significantly. Moreover, news of one company can influence other financial instruments besides the stocks price, and even the currency rates. Thus, if Amazon or Microsoft stocks rise, S&P will probably go up, too.


How the stock price influences currency rates

The currency exchange rate can react to the changes in stock prices as well. If a prominent company's stock price rises, the demand for a currency, in which the company's stock is related may increase because investors suppose the Central bank rates may rise.

Generally, if forecasts work well, the stock price has all the chances to reverse, compared to previous dynamics. If the reading overshoots or undershoots the forecasts on a big scale, the overbought and oversold market is able to correct up or down in case if the data is positive or negative.

What are the major economic reports?

Of course, most reports, like Non-farm Payroll, have overall influence to the world economy. People from different parts of the world equally anticipate releases of countries GDP, companies earning reports and bank interest rates, because these factors influence different assets price considerably. Moreover, some reports releases even cause volatility. So, to find out the major economic reports and news for the instrument you trade, find it in economic calendar, like the one on investing.com, apply filters by country, sector and importance, and use analytical data to prepare your trading to news release.

Stay tuned! Ready to learn more? Also read more in our articles:

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.