The first thing I want to highlight is the importance of being aware of the prior days High/Low/Close for all vehicles you trade. If you are trading the Index or commodity futures, I highly recommend drawing on your charts a Red Line at the prior day’s high, a green line at the prior days low and a 3rd color (I use Yellow) for the prior day’s close. When adding these lines, you will be amazed at how often these prices act as intraday support and resistance. This is very easy to do in ThinkorSwim and I imagine most trading platforms should have drawing tools on the charts. I would do the same for your top few ideas and “in play” stocks for that trading day. Keeping too large a watch list will make this task very time consuming. You will also put yourself at greater risk of missing your top ideas. I have learned the hard way and recommend: KEEP A MANAGEABLE AND FOCUSED WATCHLIST!
The focus of this post will be on trading reversals on stocks that have reported earnings that morning or the prior evening. As a trader who primarily trades on the long side, I would often disregard companies that I saw trading sharply lower following an earnings release. BIG MISTAKE! The initial reaction is often wrong and “if” these reverse they can offer some of the best trading opportunities for that trading day and beyond. This same play works for companies announcing secondary offerings or other fresh news that is perceived as bad.
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