One of the patterns highlighted in latest edition of Encyclopedia of Chart Patterns by Thomas N. Bulkowski is earnings lead breakout. Sometime back Bulkowski also wrote a article about it in Active Trader magazine.
Bulkowski's Earnings Flag
Performs best in an upward price trend.When the company announces earnings, the stock makes a large move up or price gaps upward the next day if the market happened to be closed.Look for a near vertical price run, preferably lasting several days.Near the top of the flagpole, price consolidates and usually trends downward. The appearance can be a flag, pennant, or an oddball shape. The best performers are tight congestion patterns, not loose price structures with the stock meandering up and down.A breakout occurs when price pierces a flag or pennant trend line or closes above the high in the pattern (including the flagpole). Don’t trade unless you get an upward breakout.
His method is different from what I have outlined. It basically involves buying a bull flag post earnings. According to his article and book it is the best performing event pattern with average 34% returns. Now if you see the examples he talks about most of them involve buying days after earnings. While the objective of tracking the 100% plus earners on day of the earnings is to catch the first part of the move, which is very rapid up move.
Many times the stock will form bull flag so late in the move that you would miss bulk of the possible returns by waiting for the bull flag. I have traded this for 25 or more earning season and in my experience the real good surprises (significant earning surprise or growth, low float and with no major price growth in last 65 days) are best bought on the earnings day. Buying after the bull flag is formed is another way to play the earnings. Now this should excite the technical analysis junkies even more about trading earnings breakout.
Related posts :
How to trade earnings
How to trade earnings Part2
How to trade earnings Part3
Related posts from last earnings season:
Earnings Season- Time to be very careful...
Earnings and Dan Zanger
Earning Surprise System for $1495
Trading Earnings Breakouts
Earnings Acceleration- Long Term Impact
Trading Earnings Breakout -Part1
Trading Earnings Breakouts -Part2
Trading Earnings Breakouts -Part3