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Want to know why stock prices sometimes surge or crash overnight – seemingly without warning? It often comes down to one thing: earnings season.
Whether you’re watching Apple, Netflix, or a major index like the S&P 500, the quarterly results that companies release can shake your trading strategy – or supercharge it.
For traders, earnings season might seem noisy or unpredictable. But with the right preparation, it can become a valuable period of opportunity.
What is earnings season?
Earnings season refers to the period when publicly listed companies report their financial results for the previous quarter. This happens four times a year, usually in January, April, July, and October.
Most companies publish their results within a few weeks of each other, making these periods particularly busy for traders.
The reports typically include key figures such as revenue, net profit, earnings per share (EPS), and forward guidance. They offer insight into how a company is performing and what it expects in the months ahead.
Market participants closely follow these releases because they influence sentiment, expectations, and – often – share prices.
For instance, when Tesla reported better-than-expected earnings in July 2024, its share price jumped more than 10% in after-hours trading. In contrast, a company might beat profit forecasts but still drop in value if its future guidance is weak.
Why earnings season matters to traders
Earnings reports can lead to sharp price movements, especially when results differ from what analysts or the market expected.
That’s why these releases are often seen as catalysts – not only for the individual stock, but sometimes for an entire sector or even the broader index.
Consider the impact when large US banks like JPMorgan or Citigroup report strong numbers. Their results can influence the performance of financial stocks across the board and even drive momentum in the Dow Jones Industrial Average or S&P 500.
This makes earnings season a critical time to monitor key players, not just for stock-specific moves but for potential sector-wide trends.
Traders who are well prepared can use this volatility to their advantage. It creates opportunities for short-term trades, breakout setups, or momentum plays – but only if approached with discipline and planning.
How to prepare for earnings season
To make the most of earnings season, preparation is key. By planning ahead, you can avoid surprises, spot better opportunities, and trade with more confidence. Here’s how to get started.
Build a focused watchlist
Start by selecting a handful of high-impact companies that tend to move markets. You don’t need to follow every stock – focusing on names like Apple, Microsoft, Amazon, or Tesla can be more effective, especially if you’re familiar with their sectors or past performance.
Track earnings dates
Use an earnings calendar to stay on top of when these companies are set to report. Knowing whether results will be released before the market opens or after it closes is key to planning your entries and exits.
Understand market expectations
Price movements are usually driven by how actual results compare to expectations. Take time to check analyst forecasts for earnings per share (EPS), revenue, and forward guidance. Studying a company’s past results can also help identify patterns – such as how it tends to perform after beating or missing estimates.
Consider the broader market context
Earnings don’t exist in isolation. Central bank decisions, inflation data, or geopolitical developments can shape how the market reacts to company results. A strong report might not lead to a rally if investor sentiment is cautious or global conditions are uncertain.
Prioritise quality over quantity
Rather than chasing every potential setup, focus on a few well-researched opportunities that align with your trading style. This helps you stay disciplined and avoid emotional decision-making when the market gets noisy.
How to trade during earnings season
There are two main ways to trade earnings: entering positions before the announcement or reacting afterward.
Some traders take positions ahead of releases, aiming to profit from surprises. This approach relies on anticipating market sentiment but carries the risk of sharp price gaps if results disappoint.
For example, Netflix’s stock soared after beating subscriber forecasts in Q2 2024 but fell over 12% the previous quarter when results missed expectations.
For those seeking lower risk, waiting to trade the reaction can be wiser. This means looking for breakout moves or pullbacks once the price starts trending after the announcement, often using technical patterns to confirm momentum.
Regardless of strategy, managing risk is crucial. Earnings season brings high volatility, so reduce position sizes, use stop-loss orders, and avoid overexposure. Sometimes, the best choice is to stay on the sidelines and observe – discipline can be your greatest asset.
Common mistakes to avoid
Many traders face challenges during earnings season. To help you avoid common pitfalls, watch out for these mistakes:
- Forgetting earnings dates: Not knowing when a company reports can leave you exposed to unexpected volatility.
- Assuming good results always mean a price increase: Markets price in expectations in advance; even strong earnings can lead to a selloff if forecasts were too optimistic.
- Overconfidence and large positions: Placing big trades on hunches or reacting emotionally to early moves can lead to significant losses.
- Ignoring risk management: Trading without stop-losses or overleveraging increases your risk unnecessarily.
- Chasing trades: Jumping into a position after a big move can result in poor entry points and higher losses.
By staying aware of these common errors, you’ll be better positioned to protect your capital and trade more effectively during earnings season.
Conclusion
Earnings season is one of the most active and potentially rewarding periods in the markets – but success depends on preparation. With the right mindset, a well-chosen watchlist, and effective risk management, even non-professional traders can approach this time with confidence and clarity.
Now is the time to put your knowledge into action. Open a live account with VT Markets today and gain access to powerful trading tools, lightning-fast execution, and real-time market data. Don’t miss out on the opportunities earnings season offers – start trading smarter and seize your moment with VT Markets.
