Earnings "Momentum Scalp" Play

Discussion in 'Strategy Development' started by jones247, May 8, 2009.

  1. Does anyone have any success with scalping the earnings? In other words, right before the earnings announcement is released, you enter a buy stop order above the market price and a sell stop order below the market price. Once the earnings and guidance are released, the stock typically will have either a upward or downward momentum. If you can ride that momentum for a few cents, you'll be profitable.

    The challenge is when earnings are announced before the market opens or after the market closes. In such instances, I'm testing the likelihood of setting the buy stop and sell stop orders materially above the previous closing price, with the plan of scalping off the openings continued momentum.

    Overall the idea is to ride the momentun for a scalp.

    Any thoughts....

  2. I did this with AZO back in march. I sold way too soon though as it went another 25pts.
  3. thanks for your reply, Cash... I wonder why more folks aren't chiming in on the concept. It's nothing radical. It's based on the premise that short term price bursts occur immediately after earnings...

  4. pspr


    I think some folks do this on the index futures when major anouncements are expected. I've never tried it myself. I've seen too many times the price screams one way sharply then turn on a dime and goes the other way before you can blink.
  5. The idea is to jump on board and the "price screams" one way for a very short period. Is all about riding the wave...
  6. Some potential problems from my experience in Forex.
    Gaps, the price sets in very high and you get filled at a price you would not want, assuming you play simple stops, not stop limits.
    Slippage, be as good as you want, there are other smart people out there and they have access to better technology.
    Large spreads, both in and out.
    No fills if using limits.
    Yes, many shits like that reverse before you can see it on the tape. You dont always have the opportunity to see and act. And it feels really bad to be shaken out.
    The idea is "good" but in practice it can be hard t o play. I dont do it on stocks, I only do it on news in Forex and what I do it fade the moves that have already occured. You got to be very fast on the keyboard and be willing to take the losses. No psychological uncertainty, hit the key.
    What else better is there than trying by yourself?
    Good luck.
  7. Because of the wide bid/ask spread and the fact that the spread especially widens during news, I have no doubt that this type of strategy is more difficult in the forex market.

    With the equity market, I'm only trying to catch the momentum of the openings after the earnings were announced while the market was closed.

  8. Good luck with that.
    The price is not going to open at fair value on that day. Higher or lower. Sometimes too high and then falls right back down (especially on nasdaq, I have no numbers to back).
    Everybody has that info and everyone would go long the good, short the bad if it was that easy, and that's why it's not going to be easy. Unless you can judge if the price of the market is too high or too low based on the number released.
    Are you talking about an OPG (opening only on the NYSE) strategy?
  9. It would be similar to Bright's Opening Order strategy; however, instead of a contraian based strategy, it's a momentum based strategy.

    I would set envelopes, but as stop orders instead of limit orders. The idea is that if the market overrecated to earnings, and the price would reverse with a strong correcting move, I would still capture such a move.

    For example, if AAPL annouced great earnings and the stock gapped up by $10. Based upon fair value calculations before the openings, as well as the ATR for the stock, I would establish my envelopes. If AAPL reverses by $3 - $5 on the next morning's session, I'm perfectly o.k. with that. My sell stop order would be filled. The plan is to ride the reversal momentum for a few pennies. This aspect is similar to the MOO, in that the aim to to capture a few pennies. Of coarse, I'm not linking to the Specialist who's obligated to fill the other side and provide liquidity.

  10. It is not good that the price firstly climbed up and fill your long order,then drop down sharply with your short order filled too.If so, you would not capture the move, but lose money(between your buy and sell stop orders)
    #10     May 11, 2009