After-Hours Earnings Reaction

Entry Logic

• Entry trigger: Stock reacts strongly to an earnings release in the after-hours session.
• Confirmation: High volume and a clear, sustained move in one direction.
• Timeframe: 15-minute chart.
• Location context: The trade is taken after the initial volatile reaction has subsided and a clear trend has been established.
• Market condition: High volatility, earnings-driven momentum.

Exit Logic

• Profit target: The next major daily support or resistance level.
• Scaling out: Not recommended.
• Trailing stop: A manual trail bar-by-bar on the 15-minute chart.
• Signal failure exit: Exit if the stock reverses and the earnings-driven move fails.
• Opposite signal exit: Not applicable.
• Time expiration: Exit the trade by the end of the after-hours session.
• Momentum loss: Exit if volume dries up and the stock goes into a tight consolidation.

Stop Loss Structure

• Hard stop: 2% below the entry price for longs, 2% above for shorts.
• Soft stop: A close below the low of the entry candle.
• Max dollar loss: $1000 per trade.
• Max percent loss: 2% of account capital.
• Structural stop: Below the low of the after-hours session for longs, above the high for shorts.

Risk Management Framework

• Risk per trade: 1% of account equity.
• Maximum daily loss limit: 4% of account equity.
• Maximum weekly loss limit: 10% of account equity.
• Maximum drawdown: 25% from peak equity.
• Risk-reward ratio: Minimum 2:1 required.

Position Sizing Model

• Sizing approach: Volatility-adjusted position sizing.
• Volatility adjustment: Reduce size due to the high volatility of after-hours earnings moves.
• Conviction sizing: Not applicable.
• Scaling in: Not recommended.
• Scaling out: Not recommended.

Trade Filtering

• Market conditions to avoid: When the earnings report is ambiguous or the market reaction is choppy.
• Specific setups required: A clear earnings beat or miss with a strong, sustained price reaction.
• Stock/instrument requirements: Only trade stocks that have just reported earnings.
• Time of day restrictions: Trade only in the first two hours of the after-hours session.
• Chop/news avoidance: Be aware of conference calls that can provide additional information and potentially reverse the move.

Context Framework

• Trend direction: Trade in the direction of the earnings reaction.
• VWAP relationship: The price should be well above or below the after-hours VWAP.
• Moving average relationship: Not applicable.
• Range location: The earnings should cause a significant gap out of the recent trading range.
• Higher TF alignment: Not critical, as earnings can create a new trend.

Trade Management Rules

• Breakeven: Move stop to breakeven after a 1R move.
• Scale out: Not applicable.
• Add size: Not recommended.
• Fast vs slow moves: Expect fast moves and be prepared to take profits or get stopped out quickly.

Time Rules

• Optimal window: 4:00 PM to 6:00 PM ET.
• Times to avoid: Trading before the full earnings report and conference call have been digested by the market.
• Session notes: This is a very high-risk, high-reward strategy that is not suitable for all traders.

Setup Classification

• A+ criteria: A massive earnings surprise with a huge, sustained move on massive volume.
• A criteria: A significant earnings surprise with a strong, clear move.
• B criteria: A minor surprise or a choppy reaction.
• C criteria: Avoid all other setups.

Market Selection Criteria

• Instrument requirements: Stocks reporting earnings.
• Volume/liquidity: Extremely high volume is required.
• Volatility: Extreme volatility is expected.

Statistical Edge Metrics

• Win rate: 35%.
• Avg win: 5R.
• Avg loss: 1R.
• Profit factor: 1.75.
• Expectancy: 0.75R per trade.

Failure Conditions

• The strategy fails when the initial earnings reaction is a fake-out, often due to information released during the conference call.
• Avoid when the overall market is in a risk-off mode.

Psychological Rules

• This is a highly emotional and volatile environment; a clear head and strict adherence to the plan are essential.
• Be prepared to take large losses if the trade goes against you.

Advanced Components

• Regime detection: Not applicable.
• Filters: Filter for stocks with a history of large moves on earnings.
• Correlation: Not applicable.
• MTF alignment: Not applicable.

Location

• Strongest: In high-growth, high-beta stocks with a lot of institutional ownership.
• Weakest: In slow-moving, defensive stocks.