October 18, 2007 at 11:10 am | | Comments 3

Earnings Are Tricky

The mother of momentum stocks is set to report earnings tonight, and I have no doubt that GOOG will shake and bake one way or another after the news is out. With the odds of a large gap tomorrow morning in the stock, the allure is there for some fast profits on either the long or short side.

On that note, I know that some of you feel compelled to satisfy your craving for risk. If that’s the case with GOOG, then let me encourage you to define your risk and limit your downside exposure through a call or put purchase. If you absolutely can’t stand to pass up the gamble opportunity, then at least you’ll know what the worst-case scenario will be in case you’re wrong.

Personally, I like to save money and confusion by avoiding earnings plays. That might not sound very exciting, but I’m not a trader for the excitement. I like making steady profits with consistency, not roller-coaster emotional swings betting on coin-toss earnings reports and hoping to be right.

They’re just too tricky to play! Not only do you have the reaction to the top-line number, but soon after there is a reaction to the conference call & any guidance that may be offered. Don’t forget that expectations going into the report play a huge part in how the news is accepted, and someone’s sure to be disappointed or surprised. In addition, there are far fewer traders in the after-hours trading session, which means less liquidity. That’s a really bad thing when you discover you’re wrong and need out of a trade!

Best bet: stay away from earnings and let the amateurs duke it out. Instead, find the chart patterns you like and trade them. Exploit your edge over time for profits, and don’t worry about the gambles for the sake of excitement.

Trade with discipline!

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service

[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]