🛒 Earnings Strategy
Introduction
Earnings season brings powerful price movements, often triggered by surprises in revenue, guidance, or EPS. The Earnings Strategy focuses on two common reactions: Gap & Hold (continuation) and Gap Fade (reversal). Knowing how to identify which one is in play can help traders capitalize on some of the market’s biggest intraday moves.
📊 Two Core Patterns
🔹 Gap & Hold (Bullish Continuation)
Occurs when a stock gaps up after strong earnings and continues higher during regular trading hours.
Requirements:
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Strong beat on EPS/revenue and positive guidance.
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Gap above prior resistance levels or multi-month highs.
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High relative volume + strong pre-market sentiment.
Entry:
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At open, on consolidation breakout or VWAP reclaim.
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Confirmation with higher lows and continued tape strength.
Target:
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Round number psychological levels or previous daily resistance zones.
Stop:
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Below VWAP or consolidation base.
🔸 Gap Fade (Bearish Reversal)
Occurs when a stock gaps up/down but reverses as the market fades the news—often due to overreaction.
Requirements:
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Mixed earnings (e.g., beat EPS, missed guidance).
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Gaps into major resistance/support.
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Weak tape, low conviction, or market-wide weakness.
Entry:
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On lower high after open.
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On break below pre-market support with rising volume.
Target:
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Gap fill area or VWAP flush.
Stop:
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Above intraday highs or failed breakdown levels.
🕒 When to Use It
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First hour of trading after earnings.
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Stocks with unusually high pre-market volume and volatility.
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Best applied Tuesday–Thursday during peak earnings weeks.
📌 Tips for Execution
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Always check pre-market sentiment and analyst reactions.
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Watch options flow and implied volatility crush post-earnings.
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Avoid micro caps unless extremely liquid.
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Use smaller size when trading unconfirmed direction (before breakout or breakdown).
⚠️ Risk Management
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Post-earnings moves can reverse quickly: use hard stops.
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Manage position sizing based on ATR and expected move.
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Be mindful of halts and circuit breakers.
🧠 Pro Tip
Use historical earnings data: how did the stock behave after past reports? Look for day-after patterns like consistent fades or squeezes. This adds statistical edge.
🔗 Where to Use It
Use this strategy in The Next Trading Day under category:
📉 The Earnings Report