Traders who want to trade direction wait for the earnings season to make money trading stocks that open gap up or down.

Usually when a stock gaps up or down they continue the trend for quite some time. Traders want to trade that direction either through equities, futures or options.

One of the best ways to trade earning season is to trade gap up or down. To do that a trader must enter the trade one day before the stock’s earnings are out to take benefit or gap up or down.

There are some stocks with a history or opening after the result season with a huge gap or down.

In this article I will teach you how to find the right earnings gap up or down stocks.

This is the step by step guide.

Note: There is a chance that traders take a wrong direction is futures and suffer heavily once the stocks gaps up/down in another direction. In my future and option course you will learn a future with option hedging strategy where even if you are wrong in future direction you will end up making money. The course not only teaches conservative options strategies but future hedging strategies as well.

Almost all stocks report quarterly earnings so how to select the best stocks for trading that can explode?

Here are some guidelines to find the stocks to trade in the earning season.

1. Daily Volatility & Liquidity are Important

You can get a daily chart from investing.com. If the stock gaps down or up during earnings season historically its worth trading. My Futures and Option course has a good aggressive volatile non-directional strategy for future traders. You can do the course and trade the directional strategy in these kinds of stocks to make money during earnings season.

You must also make sure that the stock has good liquidity else you may be able to get in but find it difficult to get out of a trade.

As soon as you see a profit you must be able to get out.

Once you find these stocks just keep a watch on them and trade them on earnings season.

2. Market Forecasts are Not Wrong

Usually before quarterly report you will find many online business website like MoneyControl write what the market experts expect results from a company. They may not be exactly right but they are right in their approx projections. If quarterly results projection forecast is good, go for long, else go for short. Most of the times you will be right. But make sure you hedge your position. If you are wrong even once you may lose what you earned in last 7-8 trades. You will learn good hedging techniques in my course.

3. Stock’s Daily Range Is Important

Some stocks move 1% a day but some move average of 3%. More move means more money. These kinds of stocks you should trade not the low move stocks. Stocks that move 3-4% average daily will surly move 9-10% during earnings season. Trade them you will make more.

4. Trade Small Floating Stocks

Float is the number of shares available for trading of a particular stock. Floating stocks are stocks that retail investors can trade not the one that are held by the management or by the owners.

Opposite of Floating Stocks is Closely-held Stocks. Closely-held Stocks are owned by insiders, major shareholders (management) and employees.

A stock with a small float will generally be more volatile than a stock with a large float. They will have small liquidity and wider bid-ask spread. However during earning season these stocks will find good liquidity.

Low float stocks will move big during earning result day. They will most probably break their usual support and resistance levels.

5. Wait for the Right Setup

Once you find the right stock to trade chances are that it may have already factored in the market experts view in their pricing, but they will not try to break the support and resistance levels. Once the result is out they will do. So do not worry about small volatility before the earning day, as this is natural. One day before its result will come out you can take the position in the direction with a hedge market pundits are predicting.

What You Can Do Now?

If you are an aggressive Future trader you can do my course to learn how to hedge Futures with Options to make sure the losses are limited and profits are unlimited in correct way. After learning the strategy you will not fear trading futures as you will know if wrong your losses will not be unlimited. Fees can be paid here.

Experienced traders usually do not do Intraday trading they want to hold the stock up-to a certain time and sell. This is swing trading. There is no definite difference between swing trading and investment. However a stock held for less than two-months is swing trading and above that becomes investment. Some people have the habit of swing trading with futures, in that case even if they keep rolling the future for months it is still swing trading. In fact all futures trading is swing trading whether intraday futures trading or keeping the positional futures until expiry. However Option trading is not swing trading whether you buy or sell options, positional or intraday. Option trading is pure trading.

In this article we will learn Swing Trading Rules.

This article explains how to trade momentum stocks for beginners and experienced traders.

Benefit of Trading Momentum Stocks

If you can find good entries in momentum stocks manage your risk and stick to a good plan you can always trade momentum stocks very well.

However it is very important to first have some idea on how to trade the momentum stocks.

In this article I will tell you a few guides and rules you can follow to trade the momentum stocks.

Breakouts of Daily Charts Are Very Important Signal

If Nifty is rising there is a high chance that 80% of the Nifty 50 stocks will rise.

What You Can Do

Look out for stocks that had seen long period of consolidation. Stocks with good moat and market cap. If they were stagnant for a long time there is almost a certainty that they will move up along with Nifty. You can go long in these shares. It is always better to have some ideas on Candle sticks. For longer term holdings you can go for 50 days moving averages. The longer a stock is trading within a support and resistance, the more powerful the move will be when it breaks major resistance or support.

Breakdowns of Daily Charts Are Also Very Important Signal

Breakdowns is same as Breakouts except its to the downside. A mid-cap stock not doing well still trading range-bound for last 3-4 months will break its support and move down fast if overall the market condition is negative. However you may have to use derivative trading to short a stock. If you use futures or options to short a stock you must learn hedging. 50 days moving averages is also very important here.

Lookout for Pullbacks

Most stocks do not go straight up or down forever. Some stocks make a strong move up or down in matter of days but after certain percentage move a pull-back occurs. Moving averages can come at help here. When new moving average is created look for new support and resistance levels. 20 day moving average a good to know short term trend, 50 day is best for a medium term especially for mid-cap stocks. If you are looking for more profits and can give time then 200 day moving average is a good indicator.

Points to Remember To Trade Momentum Stocks

It is true that first hour belongs to the novice traders. It’s possible to make huge gains in just a matter of minutes. However, it is also possible to lose a lot of money very fast as stocks may change direction very fast, so you need effective strategies with solid risk management to make profits. However if some research is done even first hour can be very profitable trading intraday.

Here are some ideas to trade the first hour of stock market opening

Remember that the first hour is MOST Volatile

If you check the stocks that opened the highest gap up or down for the day – in most cases they will reverse as time passes by. Usually the novice traders buy the gap up open stocks and sell the gap down open stocks thinking that they will take the same direction throughout the day.

Fact is they do not and novice intraday traders lose heavily.

So should you do the opposite? No its not that simple.

Here are some ideas that can help you become a better First Hour intraday Trader:

Read business related news the night before next day markets opening

Now a days online newspapers are plenty. Its easy to read news real time to know whats happening around you. Reading news will give you an idea of what may happen the next day in stock markets.

For example if there is a very bad news in a sector you can short the stocks in that sector.
If there is a good news in a sector you can buy the stocks in that sector.

Chances are in the first hour these stocks will trade as per the news, then the professional traders will come in and either push the stock in the same direction or change the direction. But by that time you have to exit the stock.

You should plan out your exits in advance and keep it in the system as stop loss/profit limit orders to exit your positions. The stocks will be moving so fast it is easy to miss an exit, therefore system exit is recommended as soon as the order to buy/sell is complete.

First Hour Is Period of Price Discovery

In the first hour 80% of the trades are done by novice traders then last 15 minutes of the first hour the experienced traders take control and the real price gets discovered. The idea is to find novice traders are more with demand or with supply. If the demand is more then the stock will keep rising else it will fall just after gap up opening or vice versa.

It is recommended to learn a few things about candlesticks 5 minutes charts that can help you to try to find the next move of the stock in first hour. But just candlesticks 5 minutes charts are not important. Previous day news, candlesticks 5 minutes charts, total volume increase in terms of percentage form the previous day – all these things combined can help you trade the first hour of a volatile stock.

Learn to Trade The Volatility

The first hour is too volatile. In seconds you will see the trade in profit or in loss. You will be puzzled where to book profits or loss. So for every volatile stock (mid-caps), keep the profit percentage shorter and for large cap stocks (non-volatile), keep the profit percentage bigger.

Note: If there is a good news on a large cap stock it is certain to go up for next 3-4 sessions. During this time it is better to become an investor rather than just trade the first hour and go home with a lower profit and missing out on larger gains.

Change your trading pattern according to the need of the hour.

Chasing Strength Is Foolish

In the first hour due to novice traders the stock can move up and down within minutes. The first 5-10 minutes is the WORST time to trade. All are trying to get there orders to be filled in reaction to the news. Therefore do not chase the current strength in first few minutes. Let the stock take some time to settle down and take a clear path. After 15 minutes of opening the stock usually takes the trend for the day. Read about moving averages. Moving averages will give you an idea of the real path the stock will take after some time. Trade this path. If you speculate and trade the strength you will lose badly.

Pay Attention To Last Trading Session

If the stock was very bullish in the last trading session then there is high chance that it will try to break the previous-day high again the next day. After a few minutes if the trend continues then you can be long on the stock. However it is important to read any news related to the stock the previous day. Strength may not continue if their is a bad news in the stock.

Hope you learned First Hour Intraday Day Trading. If there are any questions please ask in the comments section below.

If you are option trader and too busy in your job you can do my option course where neither any speculation of direction nor any monitoring is required of the markets. You can check my course details here.

There are times when you read a bad news about a stock but are not fully confident of buying its put options as this is an uncertain market you never know what may happen in a few days. In cases such as these what may a trader do?

One idea is short futures with stop loss – but we know how risky it is so its not recommended. Main problem is with gap up and down opening the next day against your trade. In one trade more than 25000 can be lost. Take the recent upside of SBI – it opened gap up on 25-Oct-2017. See this image:

SBI Gap UP Opening on 25-Oct-2017

Imagine if someone was short in SBI on 24-Oct-2017. He will repent his losses for hid entire life. This is the reason I keep telling LEARN HEDGING.

Those who hedge are free from such stress of gap up or gap down opening. Hedge has the ability to protect huge losses by a huge percentage depending on the quality of the hedge. In my course the the directional strategy is made in such a way that even if you are wrong in direction of the future you can make money. Yes you read it right – even if wrong you and making money.

Trader was WRONG in direction of future yet his trade was profitable

Of course as mentioned you can buy a PUT to keep the loss limited. But due to time loss the premiums can get evaporated in air pretty fast – premiums getting reduced with time means your money also going up in the air. Sad but true. This is major problem with Option Buyers.

Another way is to Short a Call. But then shorting a call also has unlimited risk on the upside.

If you feel a stock may go up you can always buy in cash, but you cannot short in cash. Only way is to trade derivatives to take benefit of a stock falling.

There are a lot of ways to hedge a future or option but hedging also has to be smartly done else hedge will be of not much use.

You can do my course and learn hedging, learn the strategies and trade in a better way rather speculate and lose huge.

If you are trading casually you will lose money for sure. But if you work on it like a pro you will surly be a winner in a few days time. Here are 5 important tips for new traders to become a good stock trader.

1 – Writing Down Setups Are Most Important

It is very common for a new trader to do mistakes. Even I did a lot of mistakes when I started trading. But do not let these mistakes remain a mistake. Make a diary and note down all your trades. Write the date, time, NSE/BSE levels, any important news event that happened that day or the day earlier, stock specific news in which you took the trade, the reason you took the trade, your trade details.

If you won/lose then write down the reason too if you do have a reason.

Doing the above will take time but the initial journey will become a great teacher in future. In the night read and analyze what you learned from that trade.

With time the losing trades will help you to learn a lot.

2 – Moving Averages Are Very Important

Moving averages are easy to learn and they play a very important part in deciding the future direction of stocks. Learn about them and use them in your trade set-ups. When you become experienced, use Moving Averages to determine buy and sell signals. Moving Averages are usually good for the short to medium term.

I use the 9, 20, and 50 Moving Averages. 9 for holding about a week, 20 for about two weeks and 50 for about one to two months. My stop loss is about 5% and target is 20% and the investment amount is same in all stocks. This is 4 times the loss target.

See what happens if I am 2 times correct out of 4 times (50% success rate):

Stock 1: Buy at 100 sell at 120. (20% profit)
Stock 2: Buy at 200 sell at 240. (20% profit)
Stock 3: Buy at 300 sell at 285. (5% loss)
Stock 4: Buy at 400 sell at 480. (20% profit)

That is = 20+20+20-5 = 55% return.

Fair enough right. Remember that stock investing and target takes time and with mid-caps it varies from 2 days to few weeks. So patience is the key.

3 – For Intraday Trading 5-Minute Chart Is important

If you are trading stocks Intraday it is important to look at 5-minutes candle stick charts. Its not hard to learn basics of technical especially candle sticks. However candle sticks are good only for Intraday trading not for overnight or positional trading. For positional both fundamentals and technical indicators like moving averages, candle sticks, bollinger bands, Relative Strength Index RSI etc are important.

4 – Risk Management

This is where most traders fail. I get 3 phone calls a day. Average loss is 9-10 lakhs. And what is left in their trading account? Just 40-50k. This clearly tells that traders do not manage their risk in the greed to make too much money trading. Greed is not good in stock markets trading.

While trading respect your stop losses, your targets and total money at risk in the trade. In each trade do not risk more than 2% of your total trading money. One bad trade can take out 30% or more from your trading account so be very strict here. Once you become a good trader (winning 60% of your trades) you can risk more than 2% but not more than 5%.

Tip on Risk Management: Do not trade/invest with more than 20% of your earnings (take home salary). For example if you earn Rs. 1 lakh a month, bring only Rs. 20,000 to the trading account. But if you are losing heavily make sure to stop trading and learn once you have lost 1 lakh.

5 – Trading Plan

No business in this world can succeed if they do not have a business plan. Same is with trading. You cannot succeed without a trading plan. You must know why are you taking a trade, how much money you are risking on the trade, what price your entering at, your stop loss, and your profit targets before you enter ANY trade.

The points 4 and 5 above will ensure that you do not fear trading and do not fall for greed as you already know your max profit and loss. Once emotions are out you will become a better trader.

Learn Good Strategies and Have a Mentor by Your Side

Trading by yourself is extremely challenging if you do not have the knowledge and expertise to trade. Without a mentor the learning curve becomes very though and long. Plus you may end up losing a lot of money while learning. Finding a trading mentor is essential for your trading success. You can learn from his experience and knowledge without suffering yourself. Finding a good mentor will save you years of suffering and lakhs of rupees.

This story I think is same with almost everyone of us. I do get these kinds of emails almost everyday but this story looks the same as mine. I lost 7 lakhs doing speculative trading, taking tips etc. But then when I took it upon myself things changed.

See his email here:

14 lakh loss then loan

This is what he wrote:

Hi Mr. Dilip,

I am a victim and have suffered total loss of about 14 lakh rupees.
This includes investment and losses.

Now, I am left with almost no money and had to take a loan of 2 lakhs.

I want to buy your course and start to play safe.

Should I buy the course now or should I first read something about options and then buy the course?

My only thing is that can you add 6 months of support as soon as I read your course material?
When actually I will start to analyze the market and have questions to ask you.

Thank you.

Now I am sure our trading journey starts with a loss. But letting the loss extend so much that you have to take a loan to survive is something that should be avoided.

The problem is we want to make 10% a month, actually every month. Making 10% month after month is not possible. We do not realize that to get that 10% we are losing 5% a month and then one day losses exceed lakhs.

Then there are people who take a loan to trade. You should never trade stock markets with loan money.

Stock trading income comes gradually, slowly, bit by bit not fast as most people dream of.

If you are losing money trading options trying to make 10% a month then think about this, if you make 10% this month then will you make 10% next month too? And for how long are you trying this?

At least start making small profits first, then try to think big. If you will not take the first step towards success then when will you take the second step?

You can do my Conservative Nifty Option Course and learn strategies that will keep you capital safe by hedging and help you make monthly income peacefully. You do not have predict market direction, nor look at charts, nor do any kind of speculative trading and you do not even have to keep monitoring your trades. What more do you want?

When it comes to long term investing knowledge, patience and financial planning is the key.

Knowledge – In which stock to invest?

Patience – When to book profits or exit the stock with a loss? 5%, 10%, 20% or more?

Financial Planning – I have 10 lakhs to invest. In this stock how much should I invest?

If the above all three are correct then there is a very high chance that you will make good money from your investments.

However there is more. The above are three basic principals, I dig more into some more important principals of stocks investing.

If you follow these investing principals you will come out as a gainer from stock markets.

Sell losers fast and let the winners ride

Assuming you decided to invest in 10 stocks in next 5 months times. You decided to invest Rs. 1 Lakh in each stock. Then you must plan a stop-loss percentage and profit taking percentage. Ideally stop-loss should be half of profit taking percentage. For example stop-loss can be 5% and profit can be 10%. However out of ten stocks there should be three or four stocks that you should keep for at least 10 years.

Lets take an example of a multibagger stock – Yes Bank.

In 18-Jul-2005 Yes Bank was Rs. 64.10. After 12.2 years on 20-Sep-2017, Yes Bank was 1880.10. This is an Absolute Return of 2833.0733%, Annualized Return of 31.9741%. Look at the below stock chart – do not miss the dividends paid. Do not forget that both dividends paid and profits made after 1 year are TAX FREE. This means the return along with dividends us much more than 2833.0733%.

Yes Bank 18-July-2005

Yes Bank 20-Sep-2017

Assuming a rich investor invested Rs. 10 Lakh in this stock in 2005 and exited in 2017 he would have made Rs. 2,93,30,733/- (Rs. 2 Crore 93 Lakhs 30 Thousand and 733 + Dividends). If we include the dividends the profits are much more than Rs. 3 Crores in 12 years.

Unfortunately I do not think there is a single investor in India who actually achieved this feat. I do not know if Yes Bank does give employee stock options (An employee stock option (ESO) is a stock option granted to specified employees of a company. ESOs offer the options holder the right to buy a certain amount of company shares at a predetermined price for a specific period of time.) If they do then some of its employees may have become extremely rich who may have joined in 2005 and still are serving the company and holding on to the stocks. Owners / Managers of Yes Bank have obviously became very rich.

Do not believe in Tips work on your own

Tips provider without any authenticity are best avoided. You must have received SMS/phone calls like make 5 lakh from 50 thousand in one week or something like that, or contact for free two days free trails etc. Do not respond to these messages or calls. If you have a smart phone you can install truecaller app and block these phone numbers for ever. Then there are friendly tip providers also like your brokers, friends, colleagues, relatives etc. It is better to avoid them too.

If can research about fundamental analysis then its good else BSE has selected top 30 stocks to invest. You can chose 4-5 from the list. Here is where you can find the list of top 30 stocks to invest. If you find it difficult to chose 4-5 from the list there is a simple way to figure out which stock to invest in. It is written in my How To Select Stocks course. This course will make you an informed investor in stocks, mutual funds and all other investments available in India. You will know the difference between good and bad investments. After doing the course you will be able to manage your finances well.

Do not panic with slight move in stocks against your buy rate

This is a major problem with most investors. As soon as they invest money in stock they want the stock to move up. If they see it going down they panic and press the sell button. Even the best stock will go through a rough phase. 10% up or down is very common. Do not panic and sell if you have a long term goal.

P/E Ratio is good factor but no the only factor – give it some importance but not all

PE Ratio is one of the most overlooked by novice investor and sought after and studied by experienced investors of a company’s stock since ages. PE Ratio gives an idea on whether the stock price is undervalued or over valued at a given time. Most of the times when a stock is overvalued it falls and if undervalued it goes up. PE Ratio is just one of the indicators to invest in stocks, there are others as well but PE Ratio is a very important indicator.

PE Ratio gives an indication whether current price is justified to buy the stock or not. You can read more about PE Ratio here.

If you find a good strategy juts stick to it – do not over-experiment.

Nothing more to be said here. After few experiments I stock to my my own strategies written in my course.

Think about what will happen to your account tomorrow or in the years to come not the very next second.

Long term is long term do not make it short term.

Have two accounts – one for long term investing only and other for short term trading or investment.

Keep taxes into account while investing or trading. Long tern (over one year) there is NO TAX – short term less than one year – there is 15% tax on profits.

MCX has introduced gold option contracts that start trading today. It is good news for option traders who are profitable trading options. Liquidity in Gold Futures trading is very good which will show in Gold Option trading too.

However you must hedge your trades – without hedging you are at 100% or more risk.

Hedge is a trade that protects another trade – so basically you become a broker – take money from one hand and give from another.

Hedge reduces the risk of adverse price movements in any trading object – equity or derivatives. A hedge is taking opposite position in same or related security. Pair trading for example is a part-hedge not fully hedged trading.

Basically hedge in an insurance for loss in trading especially derivatives. Like for medical emergencies we buy medical insurance, for accidental death we buy term insurance – same way for trading losses we can buy insurance.

Hedge reduces potential risk and limits the loss to a large extend. It also takes away some gains, but is a boon when the original trade is going for a huge loss. For overnight positions hedges are recommended. But hedge comes at at cost – it is not free.

For example when you could have made 10 points profits, hedge may reduce it to 7 points. But if you could have lost 10 points – hedge will reduce it to 3 points.

Therefore the joy of trading with a hedge is unmentionable. Imagine difference between a trader trading without hedge and a trader trading with hedge.

One is at a unlimited or huge risk and another is at limited profit or loss. A profit is a profit even if limited.

If you are still doing trading without hedge you can do my course and change your trading results from tomorrow itself.