A stock reports positive earnings and you think you should buy it. But you are not sure how or where or if to enter. You wonder…. will this just be another one of your “good trading ideas” turned into a losing trade. In this video, see how we spot a positive earnings report, but then more importantly turn it into a winning trade. Let’s get to work on sharing these important trading lessons so you can grow your trading account.
View Video Transcripta stock reports positive earnings and
you think
you should buy it but you’re not sure
how or where or if to enter
you wonder will this just be another one
of your quote-unquote
good trading ideas turned into a losing
trade
hi i’m mike bellfiore co-founder of smb
capital a proprietary trading firm
located in midtown manhattan and i’m
also the author of the trading classic
one good trade
and the playbook in this video see how
we spot
a positive earnings report but then more
importantly
turn it into a winning trade let’s get
to work on sharing these important
trading lessons
so you can grow your trading account
[Music]
this is an earnings day one opening
range breakout trade i made
in early november in square sq
so the trade criteria for this setup is
i want the stock to be gapping up at
least three percent
on great earnings and what i want to see
is a double b
on eps and revenue i want those earnings
to
also have aspect of a fundamental
surprise
where something the street did not
expect
with the results i want the stock to
consolidate in range right off the open
have a strong intraday level and for
this setup that’s the opening range high
and then the biggest aspect of this
trade is that the stock sells off
puts in a support level where you notice
on the tape it struggles to go
lower and buyers are strongly defending
it
and then to enter i’m going to have an
entry
after the stock breaks above the opening
range on increased volume
and then the entry is on the pullback
the first pullback after the breakout
and ideally you have the stock dip below
opening range and then on that rebid and
hold
you can enter and i want to take this
with 25
of my daily stop and then risking to
view up this is a big picture trade
so if you’re risking to the top of the
opening range you can get stopped out
very easily
and then the places to add would be
clear pullbacks on
lower volume and then my reasons to sell
this whole idea is using atr as a guide
for measured moves
i want to wait for my first sale after a
one
atr move from low a day and then take
profits at 25.25 atr increments from
there out
and then just the way i want to execute
is putting offers out
where i want to get the best prices
rather than be reactive
and um yeah and then reasons to get flat
uh to the upside would be a two atr move
uh a blow off top so we see capitulation
to the upside
uh with increased volume and then
on the downside if the stock holds below
the 21 ema for 10 minutes
uh and we’re looking at that on the five
minute chart so two candles i’ll be out
so just going into some big picture
context
this is uh right after the election so
we’re seeing extreme volatility in the
markets
there’s no new headlines from the
election and we’re still waiting on
those final results with counting
however the markets are rallying which
could be already pricing in the
biden presidency and then on the
cobin 19 aspect numbers are getting
increasingly bad
and we’re going into winter which could
be negative
so just looking at the big picture uh
we’re below the all-time high here
put in the lower high right around 350
and now post-election we’re seeing some
rallying and we’ll see that
also on some of the other charts so this
just shows it a little
uh clearer so this is the weakness going
into the election
and now post-election we’re seeing some
strength
and then just that on the five minute
and this was election night
and uh this 3 40 uh we found
buyers stepping in after the election i
don’t i don’t know if you had this
in your slide um but keeping track
of what volatility is trading at what
the vix futures are trading at i do not
have that in there
but that could be a good thing to add um
for this because it is kind of more
idiosyncratic with squares earnings but
it still would be an extra check in my
favor um
yeah so moving forward i could do that
and then uh
net revenue is up 140 for the earnings
and then this was the surprise factor
that i was talking about
their gross profit from their cash app
grew by more than 200 percent
and uh this is what cell side analysts
were very impressed with
and then that offset slower growth in
their
core business which was which is
in brick and mortar locations so that
was weaker because of the pandemic
and then also going into the day they
got upgrades from city
canaport needham mizuho and susquehanna
and then i’ll just touch on some of
their metrics so atr was 8.5
average daily volumes 9.88 million
institutional ownership 76.3
at the time of the trade arvol was seven
so that’s what i want to see at elevated
arvol
and then short flights roughly seven
percent
uh so this is the yearly chart for them
and we’re seeing a strong recovery
post march and at the time of the trade
we’re trading right below
the all-time high previous all-time high
at 190 350.
if you want to learn three more
real-world setups that our traders use
including the simple setup that we teach
all of our new traders and the setup
that turned one of our traders into a
seven
figure big money earner check out the
free webinar that we’re currently
running
just go ahead and click the link that
should be appearing now
at the top right hand corner of your
screen that will open up the free
registration page in a new window so
don’t worry
you won’t lose this video you can also
visit
tradingworkshop.com to register for this
free intensive workshop
you’re going to learn more in a couple
of hours from this trading workshop
than from years of online education
and then on the hourly what’s very
bullish for me is
going into earnings we had this very
weak day
market was weak this day and this was
shown with the increased volume as well
and now we’re trading above that uh 170
level from pre-market going into
earnings
and then this is just the five-minute
chart uh so we can see the initial
reaction
and pre-market sold off a little and
then pre-market coming back up
so the supports i have is 180 182
184 and then resistance 188
190 192 and then that all-time high of
193.50
so this is just that initial reaction
shown again
very positive initial reaction
sold off a little bit and then buyers
are stepping back in in the free market
so some previous earnings this was the
one right before
on august 4th uh just a note they had a
double beat
and many people were expecting a decline
so it was a surprise we can see that by
the initial reaction being positive
it held the gap going into the open
but what is to note is that it failed at
um
right on the open field to hold above
158 and then
faded for the day and then i’ll show you
the earnings before
so this is a miss on ebs beat on revenue
negative initial reaction
however it did have buyers step in free
market
and we could see strong right off the
open and trended higher
so i use these just to get an idea of
how
people might react it’s not an end-all
deal
but with this you can see even negative
earnings it could
trend higher positive earnings it could
fade
so just keep an open mind a lot of that
as a best practice when you’re thinking
about trading
a stock after earnings to go take go
back and take a look at how they’ve done
recently after earnings
yeah i found it very helpful and then
you’ll also have some times
where it lines up perfectly their last
four earnings
very similar price action uh and that
could give you even more
bit of conviction so i just have the
tape on an entry
and then the first couple pullbacks and
we’re looking at
square on the top uh part of the montage
and we’re going to see it right now
above
that opening range high
and above 186
so that’s what starts getting me
interested is when we see this
and you can also see that it has
increased volume on this breakout as
well
good i like how you’re looking to see if
the volume increases
with the breakout
yeah i found that very helpful that
should be one of the first questions you
ask yourself all right breaks out
making new highs what’s the volume like
yeah and then i uh have also a label in
thinkorswim that tells me so right now
the average was around sixty thousand
it’s including some of pre-market so
it’s a little skewed
but um the current bar is almost
four hundred thousand uh so it just
gives another idea that
so now we’re getting that first pullback
that i’m talking about
so i want to see how it reacts at 185
and then
if we’re able to re-bid 185 on this
pullback
i’m interested in getting along
so just waiting for it
coming back into 185 60s
all right so now we dip below 185 i want
to see how it reacts if it fails to hold
below
and re-bids i’m interested and that’s
what we see right here
so i wait until we really see
confirmation that it holds above
and i get in uh more near the 50 cents
uh one part of a review for me for this
was
after i see it hold 185 after re-bidding
i could get in there
just a little quicker but you’ll see my
entry in a second i believe at 52 cents
so yeah i’m long right there 185 52.
what you’re stopping after that v1
uh so i’ve had trouble in the past if
you try to risk that
top of the opening range uh
it’s very often that you can get whipped
out
uh so just risk and view up
and for this setup it should hold above
the top of the range but it could
trade around it yeah i think the other
trade you’re right
it gets below 185 rebids
you and it starts to hold there i think
right away
you think about
buying it against you know 180 450-ish
because of the rebid because you really
like the stock
because it has really good earnings uh
because the opening drive
and and if you if you do that
and so you have a choice there you can
make that into a trade
you can decide to dip your toes into the
water there
uh see if you see if you find a see it
moment
to really get big with 185 to really
confirm that it held 185
and if it does to save maybe 75
of your risk for after you see it
yeah it’s um very good idea
and with that yeah i could have been
bigger as well
but that is a good point and something
to think about
so with the tape i’ll just show um a
little bit more of it
but right now what you want to see on a
pullback
is i want it to now show strength have a
bounce
away from this 185 level
and get to a new high a day very fast
and right now
um still get in the trade just have to
be patient and let it
work
and once it’s through 186 we’re going to
see some real buying
so now we’re above
186 50s
and in a second you’ll see where i took
off a fifth
um when we broke to a new high a day
i’ll talk about it more in my review
slides
uh but this is something i want to work
on where i want this to be
where i wait for the big picture idea
which is one atr
rather than take profits this early and
this close to my entry
so i just took off a fifth there
and this is sugar and extreme strength
after the pullback as well
which i want to see
so now above 187
188 is uh roughly pre-market high as
well
quickly to 187 50s
go
oh yeah come on and then i’ll be taking
off another fifth
um in a second as well approaching this
pre-market high
this is what i want in a trade 2. um
i’ve been very successful when a trade
works right away from your entry um you
know it’s working
and at that point you’re really in the
driver’s seat and just have to worry
about your trade management
and profit taking so through 188 this is
showing extreme strength
and at this point i’m looking to
expect that it’s going to need a
pullback
but yeah with my review at this point
i’m out of 40
of the position before that 181 atr move
that i was talking about
uh so just something to think about
where if it is a big picture idea i have
to treat it as that with my profit
taking
yeah i’ll show this first pullback and
then i can kind of just show where i
want
so having a little trouble at 188
nothing to really worry about with the
position though
i could even try skipping ahead slightly
yeah so we’re getting this pullback back
to 187
186 60s so i
did not add here but once we have
confirmation
that this pullback hold is being held
and you’ll see with them re-bidding this
entire candle
that is a good spot to add and you can
then just risk the previous with low at
185
which is also the top of the range
so now we saw it with a bid so once it
starts rebidding
um and gets above uh the initial
breakout
high i think that’s a spot to add i did
not do that but
just something overview and look at
now i could just kind of skip ahead
uh to my exit so we get another pullback
still strong though
so yeah at this point i’m in only
twenty percent of my position and this
is still before that one atr target uh
so you’ve got
something to review and work on next
time
all right so here’s my exit 192 is
roughly
the one atr from low a day and you can
see on the right chart i have that
marked in thinkorswim
uh for just like automatically
calculates it
so once we hit that profit target i’m
out of my full position
when in reality i should have had that
be my first target
uh because the stock ends up going 193
and even farther but yeah that’s some
for the tape
and i could go to the trade management
so yeah just to kind of reiterate it
kind of talked about it there but
on that first pullback when it rebids
185 that’s my entry
25 of my daily stop
and i don’t want to sell at the
0.5 etr from low a day so that’s what i
did
on that break to new high but in reality
this is
a big idea big picture idea and i have
to wait so i say
sell to 10 percent of the position going
into 190. so you’re using atr
as your exit yeah you’re using the
indicator atr average to range as your
indicator to help you exit
yes and the average true range
so what what’s the average to range in
square
so what i have right here is from the
past 30 days
so from the past 30 days is what i use
and that’s 10.5
on the time of the trade what is the
average to range
on the day of earnings
uh that i did not calculate
okay so yeah
i think you know where i’m going um yes
yeah i mean you’re trading something on
earnings
well perhaps the more like
comparison is atr on earnings uh
yeah that’s good um
but i’m just curious why
why do you come up why are using atr
what is making sense to you and your in
your trading brain
to use atr for this trade to use one atr
for this trade
so what i’ve found with my uh trading
and for this one too i’ll show with the
trade management that i want it
i want to be able to hold for more than
one atr
but with atr just that’s a way for me
uh to make sure i’m in the trade and
then you can also go back and get
stats um which like you mentioned would
be good to have
right next to you when you’re trading it
from previous earnings
you can look at similar companies and
how they reacted and then you can get
that measured atr move
from each and then that could give you a
better idea so i kind of just like it
because you can like get the stats
have the stats with you and really get
an expected move from it
rather than other ways to take profit
would be
seeing strength on the tape or
having it break out of like a
consolidation here
but what i’ve noticed with that is when
that happens
or if like i’m just looking for seeing
strength on the tape
we’ll have the stock get to this like
190 level here
and it’s looking very strong coming from
183 low a day
um really no pullbacks and it could
spook me out of the position so this is
just a way for me to stay in
for the bigger move i would say yeah so
let me just think about that think about
that through logically so you’ve got new
news in the stock you’ve got a new news
catalyst in the stock
that’s information that some of the pms
didn’t have yesterday
now they have happen today how are they
going to react
after they have that news does it make
sense to use
the atr on all the other days when they
didn’t have new news coming into the
stock
um i also
you know i i just suspect that
on on the day of earnings
i’ve never studied this but you know
what is the
you know what is the difference in atr
on the day of earnings not even just for
this particular name but for
for names overall oftentimes we see and
then i would ask
i would ask you to think about
relative volume as as you
using a judgment for how much atr’s a
stock can go
so the higher the relative volume
potentially the higher the atr’s it can
go
yeah that’s very interesting to think
about i’ll definitely uh
do some work on that too because i think
that could be super helpful
and look at something the other guys use
they use the simple moving average
i think matt uses this a lot the nine
ema
as long as that’s sloping up as long as
that trend is isn’t is intact you know
maybe you stay with the stock that’s
working
i i do agree with you that the first
trade decision
maybe one atr just to take some profits
but
yeah uh i does feel like you got
yourself in a good position and if
you’re giving it a run
you want to think about
exactly how to do that but look maybe
you measure this this trade and
one atr works out great for you and if
that’s the case you just get bigger at
the bottom
but uh you probably want to hold at
least a third
to a little bit more of a of an exit a
better reason to sell
yeah definitely i completely agree and
what i did which i’ll share with my
executions was that one atr profit
target
uh but for this playbook the way i do
want to trade it would be
holding for the bigger move which was
two atr
uh so yeah i’ll just quickly kind of go
through this
uh so i want to sell 10 coming into 190
uh this is just when the stock breaks
that initial uptrend
and this could be a resistance level
and then we get this major pullback uh
to 180 like seven and
here i want to try to enter uh add back
20
and from there just risk that 185.
so our first move into 192 that’s the
one atr i was talking about and that’s
where i want to sell a fourth
only a fourth and still be able to have
shares on
we come into 196 which is
1.5 atr from low a day i want to sell a
fourth there
and i have these levels um like
it’s in a script and think or swim so it
just populates itself which makes it
also a little easier stress free for
trading
so then just move into the five minute
we get a pull deck after that second
sale that i had and i want to try to add
that fourth back on
the pullback cleanly holds after the
re-bid
this is the 21 ema so that’s just a
sign of momentum uh still trending
higher like you would mention
what you want to see and then
sell a fourth into 1.75 atr
which was 197.85
sell a fourth into 200
um on that push to 200 that’s my 2atr
move
and then when i would want to get flat
we push above 200
um breaking out above this resistance
and you can see down here
that volume increase so that’s that blow
off top
uh and at that point i would want to
exit
so this kind of just reiterates it i was
out at
192 so that’s just something to work on
and improve for next time
so just some things that i want to think
about i want to be more systematic
so with atr that’s kind of a way for me
to do that
where just be specific be systematic and
then if it’s a big idea trade
uh i have to let it be that trade
and not get caught looking at every tick
and watching the level two and getting
out too early and then on a similar note
uh this is big picture so i have to risk
where i’m wrong in the trade
i’m instead in not doing this but
what would hurt is if you place a stop
where you try to get a certain amount of
size
um like if i risk two 185
and then if i do that it’s just
extremely dangerous
and then lastly uh it’s okay not to add
to the position
i wanna only add if it’s very clear
and i’m able to have a clear spot where
that addition is wrong so
when i force ads it causes me to get out
of trades too early when they’re not
the right ads and i’m not patient with
them
so a couple other ideas so with earnings
you can have
um a lot of conviction for certain
trades by just remembering
how similar stocks traded and that
pattern recognition
so the day before square we had q comm
earnings which i think
um you were trading as well and i think
matt was as well
and it’s not the identical setup but
it’s a very similar setup
so you can see how that reacted where we
had that sell-off
consolidation above low a day and then
it broke out to a new high day
and all the way to 148.50
so this was just the importance of
having screen time and
remembering these similar patterns with
earnings please specifically
and then another way to improve is just
past trades so this was a previous trade
from
not this earnings but the one prior and
you can just see
i did not hold for the entire move and
that led to some panic covering or panic
selling i mean
uh so my review for this trade was
becoming more systematic holding for a
bigger move
so although i did not do that perfectly
in this
playbook that i’m presenting it was an
improvement from this
trade uh so just working to continue
that process
and then lastly just mentioning that
there are variations
uh so you can also have it where this
was the entire
ev sector this day so neo expev
li but you can have a strong opening
drive that completely reverses
and it starts ranging on the open and
you get the breakout
pullback and it could trend for the
entire day uh so just important to
remember
um it could come in different forms but
the idea
the strategy variables are very similar
hey go ahead and click our subscribe
button so you don’t miss any of the
videos they’re producing for you and the
trading community and please take the
time to add your feedback
in the comments section for what videos
you’d like for us to produce next
and what you found helpful from this
video from all of us at smb
train and trade well
* no relevant positions
