Trading During Earnings Season

For any stock trader, earning season that comes after each quarter is usually the most interesting and exciting period.

During this season, you might see lots of expert opinions from analysts, forecasts, and results.  During this period, most stock traders make lots of money. In this article, we will discuss trading during earning season and how to do it in the best possible way. 

Analysts Forecasts

Analysts provide Earnings per Share (EPS) estimates by using guidance, forecasting models, and other indicators. The market and investors use these estimates to predict the company’s performance when it releases the earnings reports. 

Companies are judged by their ability and how they beat market expectations. All eyes are on companies whether a company hits its target or misses it. In simple words, companies are judged based on consensus estimates. When investors know the importance of these estimates, it can help them to manage quarterly earnings results. 

One thing should be clear that these are only estimates and can vary from analyst to analyst. Some analysts might use different metrics to estimate results, and others might use different parameters. So, you wouldn’t get consistent estimates. 

Watch Those Estimates  

Now you have estimates of different analysts and observe these estimates. A company’s ability to hit its estimated earning is dependent on its stock price. In case a company exceeds expectations, there will be a rise in its share price. On the other hand, if a company fails to meet expectations, the stock price can take beatings. 

If a company is meeting or exceeding quarterly estimates, it means that they are doing right. For example, if we talk about the performance of Cisco Systems in the 1990s, and for the consecutive 43 quarters, they are beating Wall Street’s expectations for higher earnings. Meanwhile, from 1990 to 2000 a significant increase in share price has been observed. It is a general rule that companies with predictable earnings are good choices for investments. 

On the other hand, when we talk about companies who are continuously failing to meet estimates for several quarters are doing something wrong. Let’s take an example of Lucent Technologies. During 2000 and 2001, the company missed estimates. In most cases, they missed it by massive margins. The company’s share went down from $80 to 75 cents in two years because the company was unable to deal with shrinking sales, bloated cash outlays, rising inventories, and other woes. 

Look Beyond Consensus  

Identify the shortcomings of consensus estimates and use them to your advantage while trading during earnings season. Generally, consensus estimates are the sum of all the estimates divided by the total number of estimates. So when you read a financial statement that a company expects to earn 5 cents per share, it is an average of all the forecasts. One analyst might predict the company’s earning 6 cents per share, and the second one might predict 4 cents per share so that the average will be 5 cents per share. 

Some analysts make a remarkable earning forecast, but others miss the trick and miss them by miles. So, while trusting the forecast of any expert, look at the track record of his/her predictions. So, trust the analyst predictions based on track record instead of the consensus. 

How to Make Profitable Trades in Earning Season?  

Being an investor or trader, look at the below-given tips to make more profits during earning season. 

  • Know the companies which are going to release their earnings
  • It has been seen that companies mostly release their earnings reports before or after regular trading hours. If you want to make good profits, then you must be aware of the reporting periods. You can find this information from various websites. Check the list of companies and their report dates and prepare yourself to get the most out of earning season. 

  • Know the movement of company peers as well
  • For example, a company XYZ is doing well, and it has reported excellent quarterly earnings. The chances are the peers of a company did well as well. In other words, we can say the movement of other companies will also be the same. When you have this information, you would be in a better position to make your strategies make profitable trades during earning season. 

  • Know what to focus on a company
  • Check the headline numbers and see whether the company has beaten or missed the consensus estimates. Traders mostly track these movements. Some companies, like Netflix, focus on the number of customers, and others like JP Morgan, focus on revenues from trading division. So, clear your mind and target one thing in a company to make a profit during earning season. 

  • Size your trades well
  • It is the favorite season for traders, and they love to make massive profits. They can only make good profits if their trade goes well. You know, “Greed is a curse.” So, the chances are you might lose money in the lust of making more money. So, the size of trade matters a lot. Place small trades to prevent massive losses. When you risk your lots of money in a single trade, the risks of losing money are high. So, follow this rule during earning season and during normal trades. Size your trades well to minimize losses.


    Trading during the earnings season is the dream and exciting time for the traders. Earning reports are shared quarterly.

    Months in which reports are shared are known as earning season. You can make money, and you can also lose money if you just rely on estimates and consensus. So, keep different factors in mind while trusting any analyst. Look at his track record of forecasts. Look at the previous record of the company and then trade accordingly during the earning season. Follow the tips mentioned above to make more profits during the earning season. Be smart and use your mind as well, along with analyst’s forecasts. 

    It is the time when companies announce their quarterly earnings. Quaterly reports are generally released during January, April, July, and October.

    Sky Hoon. Read Full Bio
    Website Owner, Twitter-er
    He has been trading since 2008. He started this blog to share the journey about option trading. He dabbled in stocks, bitcoin, ethereum (in Celsius Network), ETF (lazy Dollar Cost Averaging) and also built websites for fun. He used this as a platform to share my experiences and mistakes in trading, especially options which I just picked up.