Trade Earnings by Tracking Pro Traders & High Frequency Traders
Earnings Season provides plenty of strong momentum runs for Swing and Day Traders. However, many traders struggle with determining how the stock will move on the day of the report release.
To succeed at finding pro traders footprints before an earnings release is the best way to determine whether the stock will have a strong upside momentum run or downside run. This is done by adding a couple of new indicators to your analysis.
The most common mistake that retail and technical traders make is the overuse of price indicators. In today’s market volume indicators are far more useful in revealing where Dark Pools have accumulated, rotated, or distributed. They also reveal where professional traders are most active, and on which side of the trade. This is important because most large lots are not visible on the intraday exchange price action.
Instead, most larger lots are transacted off the exchanges on Alternative Trading Venues that hide the large lot activity. When larger lots are buying or selling, this weights the balance to that side of the trade. If sufficient larger lots move in, price will react at some point and move in that direction. Identifying which side of the order the larger lot is on, is how you tell whether the stock will move up or down.
This is not easily done with price indicators because nowadays the Professional Trader, Dark Pools, and accredited Technical Traders all use professional venues and specialized routing that allows them to execute precisely on a penny or half penny. This means price will hover in a tight price pattern as seen on this chart, the day before the Earnings Report was released.
Information about this stock and its Earnings Report comes late to the retail crowd. By the time it reaches retail traders, professionals, and especially the Dark Pools already know the report content. Therefore, they have already traded on that report before its official release.
The chart below shows a tight price formation on the chart ahead of the release. This stock has been running up with swing style runs out of a platform sideways pattern. This is often perceived by retail traders as a buy-on-the-dip pattern, and sometimes it can be such. However without the special indicators below the price chart, a retail trader would not see that this is not an ideal buy-on-the-dip or earnings report strategy.
Martha Stokes CMT
TechniTrader technical analysis using StockCharts charts, courtesy of StockCharts.com
Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses
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