Who made the money?<\/strong><\/p>\nThose who ‘took profits’ at the time of the announcement were the ones who obviously made money at the expense of those who rushed to buy when the news came out. One type is known as the smart money, the other is known as the dumb money.<\/p>\n
This is what happens. Just before market opening there is a backlog of buy orders waiting to be filled. After a mention on the morning news and a positive analyst statement the volume of orders skyrockets.<\/p>\n
As a result of the news and hype, the stock price opens much, much higher than the previous night’s close. A serious ‘gap-up’.<\/p>\n
Moreover, additional orders which come during and after trading begins push the price up further still, and this price ‘levitation’ usually continues upwards for about 30 minutes.<\/p>\n
This is a classic buying ‘frenzy’ which accompanies each and every better-than-expected earnings announcement to a more or lesser degree. The only thing stopping the price from actually going through the roof is the almost equal number of people selling their shares into this buying pressure.<\/p>\n
These are the people making the real money – the smart money.<\/p>\n
Within about 30 minutes of market opening all of the panic buy orders have been filled and the price has spiraled out of all proportion. The sellers are still lined up in droves (at this price very few wouldn’t sell) but the buyers have all but evaporated. No one else is prepared to buy at this price, or anything close to it either.<\/p>\n
With lots of sellers and less and less buyers the stock price starts to fall, and fall quickly it does. From there the stock price continues to drift downwards over the next few months and the cycle starts all over again.<\/p>\n
How you can take advantage of this situation?<\/strong><\/p>\nYou need to join the ‘cycle’ at a different time. Instead of joining it at the top, join it at the bottom, or better still just after its reached the bottom and is now on its way back up again.<\/p>\n
Here’s how you do that<\/strong><\/p>\nFirstly find a company which has shown consistent growth over the last three or four quarters. Ideally this would be one which has met or exceeded analysts expectations at every quarterly announcement. There are plenty of them, even in a falling market.<\/p>\n
If you look at the stock chart you would look for a pattern which showed the stock price rising quickly in the four to six weeks ahead of each earnings announcement, only to drift down again afterwards. Not all the way down, as it’s better to target a stock whose overall trend is up (higher highs, higher lows).<\/p>\n
The trick is to take your position about four weeks ahead of the earnings announcement. This would be about the time the first of the smart money does. As more of the ‘smart money’ joins you the price starts to rise.<\/p>\n
This acceleration of the price rise attracts more buyers, which in turn causes the price to rise more quickly, which in turn attracts even more buyers. Nice.<\/p>\n
On the day of the earnings announcement when the news comes out be ready to sell to the buyers who rush to buy. Do this about quarter to half an hour into the trading day. If there’s a lot of hype and coverage going on as well then you could see several more points added to the price.<\/p>\n
Take it from me, selling to the buying frenzy on earnings day is a feeling like no other.<\/p>\n
There’s a great little strategy you can learn if you’re new to trading and want to avoid the pitfalls almost all other novice traders make, you should take a look at the Ten Steps To Profitable Trading<\/a>.<\/p>\nIt works by trading on pullbacks, thereby keeping you from buying in at the wrong time. Remember buying in at the right time in the cycle? It will take you through a similar but way more powerful trading strategy that will have you selling into the hungry buyers time and time again. I recommend you take a look.<\/p>\n
Verified035<\/p>\n","protected":false},"excerpt":{"rendered":"
Why Stock Prices Fall After Good Earnings Announcements Recommended strategy which capitalizes on good (and bad) news: Ten Steps To Profitable Trading. It’s happened to<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[110],"tags":[294],"_links":{"self":[{"href":"https:\/\/tradingreviews.net\/wp-json\/wp\/v2\/posts\/2485"}],"collection":[{"href":"https:\/\/tradingreviews.net\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/tradingreviews.net\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/tradingreviews.net\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/tradingreviews.net\/wp-json\/wp\/v2\/comments?post=2485"}],"version-history":[{"count":4,"href":"https:\/\/tradingreviews.net\/wp-json\/wp\/v2\/posts\/2485\/revisions"}],"predecessor-version":[{"id":5259,"href":"https:\/\/tradingreviews.net\/wp-json\/wp\/v2\/posts\/2485\/revisions\/5259"}],"wp:attachment":[{"href":"https:\/\/tradingreviews.net\/wp-json\/wp\/v2\/media?parent=2485"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/tradingreviews.net\/wp-json\/wp\/v2\/categories?post=2485"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/tradingreviews.net\/wp-json\/wp\/v2\/tags?post=2485"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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