Tomorrow starts the first real day of earnings season.
And if you weren't aware, earnings season is the best time to be a VWAP trader.
Need proof?
This morning Delta Airlines (DAL) reported earnings and lo and behold would you look at what happened...
That's what we like to call a 1-minute multi-day VWAP reversal.
The stock reported earnings, gapped up, we looked to short it and it paid off.
Now, remember the stock could have gapped up and went higher.
I don't touch stocks that do that because it's rare that a stock gaps up and no one wants to take profit on their positions.
So you have one job tomorrow. And that's to trade for potential earnings reversals.
But Kenny, I'm not sure I can do that. I'm new and unsure what to look for! I hear you say...
I'm going to lay out exactly what you need to do right now.
Playing earnings reversals is the easiest trade you can do.
So let's get right into it...
Step 1: Target the Names You Want to Trade
Remember, earnings reversals are one of the easiest trades out there that you can do.
Where do you find who's reporting?
I like using Earnings Whispers for all of my needs.
They only list the earnings that are worth watching.
And you can order the popularity of the stocks rather than just hoping to know which ones have more potential volume.
Here's a snippet of what we're looking at tomorrow...
I would say any of these names except for BYRN will follow a VWAP break to the tee. BYRN has just too little volume usually to make it worthwhile.
Which then leads me to my next point...
Step 2: Narrow Down Your Search, And Decide How You Want to Trade Them
It's hard ahead of time to know which stocks will move and which ones will not.
Sometimes a company announces earnings and no one cares.
Other times, the stock takes off and jumps 20% overnight.
We want to target the latter.
All of these major stocks report by 8 am, so we should know exactly what to do by that time.
You want to choose a stock that has high pre-market value - a million shares in the pre-market is the golden rule - and is gapped in one direction or the other.
Then, you want to plan your attack.
If the stock is gapped up, plan to short it. If it's gapped down, plan to buy it.
Plain and simple.
Draw your red lines on your chart, define your risk and your profit targets, and then...
Step 3: Trade
So, you have a plan now. You need to execute it.
But remember, don't just buy or short a stock because you have a plan.
You need to wait for the market to confirm your plan.
If a stock is gapped up, and breaking VWAP to the downside, get in there and get involved.
If a stock is gapped up, and just keeps going up, forget about it.
Move onto another name, and maybe trade it later.
It's always good to have two or three names in your back pocket in case the first trade isn't doing anything for you.
Remember, with every trade we do, we define our risk going in, we sell part of it as it's going in our favor, we move our stops to make sure we ensure a winning trade, and we make our day's pay.
Let me know if any of this was helpful, and if you had any other questions before tomorrow hits.
You can shoot me questions at [email protected].
I'll see you all tomorrow morning
The post Take These Three Steps to Prepare for Earnings Tomorrow appeared first on This Is VWAP.
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