Every now and then a company announces its earnings. During this time there can be many surprises. Earnings may change people’s opinion of the stock.
When earning is being announced it is a considered to be a very dangerous time. Because of all the uncertainty you do not know what a given stock will do.
They can cause huge jumps up and down. A stock can be trading at $60 before earnings and $50 after they are announced. Such huge swings can hurt a trader who is long on that position. Every trader needs to have a plan for what they will do during this time.
Some traders will choose to trade the earnings. They will try to predict direction the stock will move. This can be dangerous in a few ways. First of all you do not know exactly what a given stock is going to announce.
Also you do not know how the people will react to what is announced. Stocks can crash to good news or rally to bad news it happens all the time. That is why trading earnings can be much like a gamble.
Other longer term traders may choose just to hold their positions through it. They can justify that by saying that stocks do not always move big during earnings. They can also say that strong stocks have strong earnings. This means that a stock which keeps going up is more likely to get a bust from their earnings announcement then a crash.
Perhaps the safest thing you can choose to do is not to trade a stock that is announcing their earnings. That is not to say that you cannot trade during this time there will always be opportunities in the market. But sticking away from trades that can be so unpredictable can be a positive thing.
For more information on trading during earnings visit http://www.stocks-simplified.com/company_earnings.html
For more information on trading in the stock market visit http://www.stocks-simplified.com