Tuesday, February 1, 2011

Playing earnings gaps in after-hours and pre-market Part 1

It's been a while since my last post, so I thought I'd go over a new strategy that I have been using successfully lately. It involves playing stocks that report earning after the market close. This is a little more risky than trading during market hours, because the bid/ask spread is usually quite wide, and you can have some really bad fills if you're not careful. So you should always use limit orders in AH!

Anyway, so the strategy is not very complicated, but basically I just watch the bids after a company reports earnings, and look for key support levels, where the stock may trade only a few hundred shares, but jump right back up. The stock will often test this significant level twice during the after-hours period (4pm-8pm). So if you're fast, you can grab it there the second time around. If you're like me and you work during the day, then a good strategy is to place a GTC order to get filled around that support level. Then you go to bed, and surprisingly the next morning you find out you've been filled at a great price, and the stock is already well above your cost at the open!

Here's an example for BIDU that I traded today, from information that I got yesterday in AH. I watch the quotes go by on Nasdaq.com, and have to refresh every few minutes or so, but if you can get AH charts, that would be much better! Once I figured out that BIDU had a good support level ~113.8 to ~114.6 and offers were taken up there very quickly, I placed a GTC order to buy at 114.10. I got filled at 1:00am according to my broker, while I slept, and when I got to my computer this morning, shares of BIDU were already at 117.50.

I'll try to post a chart of the AH price action when I get home tonight! But in the meantime, here's what I'm talking about when I say I follow the quotes on Nasdaq.com:

I used the same strategy to play AMZN and SNDK last week. So I'm adding this one to my trading plan!

1 comment:

  1. neatttttt, but what if the stock goes completely against you? due to terrible earnings, etc.?

    as always, it's a pleasure to read your thoughts and notes.