Trading Earnings Announcements: Main Talking Points
- Earnings season occurs a few weeks after the final month of a financial quarter and provides unique opportunities for equity traders
- It can result in immense single-stock volatility that has potential to spill over into other companies, sectors and the major indices
- This guide will cover three key things traders should know when trading earnings season
- Check out DailyFX’s Quarterly Equity Forecast for the Dow Jones[1], S&P 500[2], Nasdaq[3] 100 and more
For a quick introduction: Earnings Season: What is it & Why is it Important?[4]
3 Things to Know When Trading Earnings Announcements
Earnings season provides an excellent opportunity for equity traders to gain insight on the standing of their investments and what it may mean for share prices in the coming weeks and months. Further, quarterly results can also result in significant short-term price swings with heightened volatility. Taken together, the implications from a corporation’s quarterly performance can provide a unique trading opportunity, but there are considerations to be made before diving in.
Below are 3 things all traders should consider when trading earnings season
1. Earnings can Create Substantial Volatility, both Implied and Realized
First and foremost, quarterly earnings possess the potential to seriously uproot an ongoing price trend due to their relative infrequency and importance. Given this ability, causes traders to position for severe price swings – evidenced by heightened implied volatility.
Stock Market Basics: A Beginner’s Guide to Trading Stocks[5]
Since it is exceedingly difficult for the average investor to correctly forecast how the company will perform – never mind the eventual impact on its share price - the risk-reward of entering a position immediately prior to a report can be skewed. If your investment
