Trading on News and Earnings: How to Find Entry and Exit Points

News Stocks, Earnings, and the Role of Guidance

If there is a moment in the market when everything is boiling, it is earnings day.

Volatility, volume spikes, people shouting “long!” and “short!” in chats — it is like a rock concert, only instead of guitars, you have candles.

That is why news stocks are a separate genre of trading.

When a stock moves only a couple of points on normal days, on earnings days the range can expand to +20% or even +30%. These are exactly the moments when the market opens up for active traders: higher volume brings liquidity, and liquidity creates opportunity.

(If noise and speed do not scare you, welcome.)

Why Earnings Matter More Than Any “Big News”

The contrast is that the market reacts not so much to the report itself as to the guidance. The numbers from the last quarter are already priced in — the market builds them in ahead of time. But expectations for the future are a zone of uncertainty, and that is where movement is born.

Good numbers without optimistic guidance often lead to a decline.

And on the contrary, weak results can trigger a rally if management speaks confidently about the outlook.

After earnings reports, the first reaction often appears not at the next market open, but right after the regular session closes. However, the evening move can be sharp and difficult to execute because of wide spreads and a thin order book. Before trading this kind of move, it is worth separately accounting for the risks of postmarket trading after earnings.

That is the classic setup: the report is a fact, guidance is emotion, and the market trades emotion.

Buybacks, Guidance, and the “Surprise” Effect

One of the strongest price drivers remains buybacks — a company repurchasing its own shares. When a company feels confident, it is literally voting for itself with money. And when an expanded buyback program is announced together with earnings, the market reads it as a sign of strength.

This is also where the “earnings surprise” effect appears.

The media will write that “the company beat expectations four quarters in a row,” even if profit is falling. What matters is that guidance beat consensus.

And the more unexpected the result, the stronger the volume spike.

On those days, not only retail traders enter the market, but also funds — to quickly reduce or increase positions.

Sometimes it looks like a mini-tsunami: one +30% candle can cover the previous 30 days of the chart. The market lives on contrast — the stronger the surprise, the higher the amplitude of the move.

How to Select Tickers for Trading

Finding the right tickers is not about “favorite companies,” but about activity and volatility. If a stock stands still for weeks, there is nothing to catch there, even if the company is called Apple. For a trader, the brand does not matter — movement does.

News stocks always stand out through volume. When a headline, earnings report, or rumor about a management change appears, liquidity increases and the chart comes alive.

At those moments, risk rises, but so does profit potential.

That is why the trader’s main task is not to guess direction, but to select assets where opening a position makes sense in the first place.

Selection Logic: From Facts to Opportunity

1. Start with a news and earnings filter.

Look for companies that made the headlines — earnings, guidance, court decisions, mergers. The principle is the same: the louder the catalyst, the bigger the crowd and the higher the volatility.

2. Watch volume.

A stock without volume is dead. For filtering, you can use Relative Volume (RVOL). If RVOL is above 3, that means the stock currently has three times more activity than usual.

3. Consider levels and price behavior.

Support and resistance levels are the map the market moves along. When a level breaks on news, an impulse often begins, but that does not mean it will continue. That is why it matters to understand how price behaves around key levels.

Classic Mistakes When Selecting Tickers

Many beginners latch onto “favorite brands”: they trade Tesla because they own a Tesla, or Apple because they have an iPhone. But the market does not care about your preferences — it is indifferent.

“Intuitive trading” is no less dangerous: when a ticker is chosen by gut feeling instead of data. In trading, that almost always ends the same way — emotions and losses.

Gap Trading: Finding the Best Entry Points

When the market wakes up with a gap, it is always an event. Price opens with a break, and traders rush to see what happened.

Sometimes it is earnings, sometimes a lawsuit, and sometimes just panic. But gaps often become the starting point for strong moves.

Why Gaps Work

A gap is the difference between yesterday’s closing price and today’s opening price.

And if the company is large, the effect is visible immediately: market capitalization can lose tens of billions in a matter of minutes.

Example: after earnings, UNH dropped 15%, losing about $110 billion in market value in a single day.

A move like that is never random — behind it are funds, orders, and emotion.

How to Filter Gaps

1. Gap strength

The larger the company, the more meaningful the move. For large-cap tickers, a 10% gap is already panic territory. That is why gap trading works especially well in S&P 500 stocks, where volume is stable and noise is lower.

2. Level breaks

At minimum, watch local levels; at maximum, fundamental ones. If the gap breaks a “round” level like $500 or $100, it becomes a psychological trigger for the market. Such levels often turn into new support or resistance.

3. Volume ×3 or more

If volume is three times above average, something important is happening in the stock. You can use Relative Volume (RVOL) to confirm it — a key tool for finding hot tickers.

The Most Common Mistake

Beginners see a +10% gap and immediately enter “in the direction of the gap.” But a gap does not always continue the move. Sometimes the market only reacts to the news and then starts correcting. It is like trying to jump onto a train that has already left: it only looks good on paper.

That is why it is important to evaluate risk-to-reward before entering.

If the stop has to be placed too far away while the movement potential is limited, it is better to skip the trade.

The formula is simple: an R/R of at least 1:2 is the minimum.

Summary: Gap trading is not a way to “catch luck,” but a tool for analyzing the market’s reaction to a news catalyst. The winner here is not the one who clicked “buy” first, but the one who correctly assessed context, volume, and risk.

Remember: a gap is not a signal — it is a reason to take a closer look.

How to Determine the Direction of a Stock

A correct entry is only half the task. It is just as important to understand which direction to trade in. If a gap is a flash of attention, direction decides who wins the fight: buyers or sellers.

1. Look at the Gap Itself

If a stock opens up +20% in a single day, that is already a signal. Even for small caps, such a move means not just interest, but a mass market reaction.

But it is important to remember: a strong gap can be the end of a move, not the beginning.

Very often, after a violent open, profit-taking begins — especially if the news has already been “priced in.” Experience and observation help here: as soon as candles start to shrink and volume falls, the move is running out of steam.

2. Use Technical Indicators as Filters

SMA 200 is the base — a foundational line showing the average price over 200 days. If price is above it, the long-term trend is upward; if below it, downward.

EMA 50 is a more sensitive moving average. It reflects the market’s “mood” here and now.

When a gap breaks through both, it is a strong signal that the move is confirmed.

3. Analyze RSI (Relative Strength Index)

RSI is your market thermometer.

1. RSI above 80 → the stock is overheated, and the crowd has already “bought everything.”
2. RSI below 20 → oversold conditions, and there may simply be no sellers left.

But do not confuse RSI with a prophecy. It does not tell you where price will go — it shows how distorted sentiment has become.

That matters because it keeps you from buying euphoria and shorting panic.

4. Visual Analysis Is Your Best Indicator

Yes, it sounds basic, but sometimes you simply need to look at the chart.

If a stock has already doubled in a month and then gaps up to new highs, that is usually not a buy signal, but a reason to be cautious. When the market looks “too obvious,” it is usually preparing a surprise.

5. Shorts / Float

Short float shows how many shares are in short positions relative to the total number of shares available.

For example, a 20% short float means 20 million shares are short out of 100 million in circulation.

The higher this figure, the higher the probability of sharp moves.

But you should not automatically count on a short squeeze — it is rare. Funds can sit through losses for months, while retail gets shaken out first.

Conclusion:

Determining direction means finding a balance between logic, technique, and common sense. If SMA and EMA confirm the move, RSI is not overheated, and volume remains high, the direction is clear.

And if even one parameter contradicts the others, it is not a signal — it is a reason to wait.

How to Exit a Trade Correctly

Entry is emotion.

Exit is discipline.

And if the first can be done “on intuition,” the second, without a system, turns trading into a casino with a beautiful interface.

1. Day Levels

Always look at historical levels, even if they were formed several years ago. If a stock has already rallied to that level before and was sold off from there, there is a high probability the story will repeat.

Why?

Because large participants sit in those areas and remember where they exited before.

2. Psychological Levels

Round numbers are market magic.

1. For expensive stocks like LLY or NVDA, these are $500, $550, $600.
2. For mid-priced stocks, the steps are usually $5–10.
3. For cheaper stocks under $20, every $0.50 matters.

At these levels, the crowd likes to lock in profits, while market makers like to collect liquidity. The market is built to reverse a few cents before your target, and if your take-profit is placed exactly at “$100,” assume it will not be filled.

3. Place the Take-Profit Slightly Before the Level

If the target is $100, place it at $99.79.

If you are short from $105, place it at $100.21.

Over time, this adds only a small improvement, but it creates a huge difference in execution statistics. Trading is not about fighting for perfect numbers — it is about realized results.

4. Scale Out of the Position

Never wait for the “absolute top.”

The 1R partial method solves two problems at once: it reduces stress and stabilizes the account.

If your stop was at $99 and your entry was at $100, then once price reaches $101, you can close half the position. That effectively moves the trade to breakeven without shifting the stop.

That is the basis of risk management — it begins not with the stop, but with understanding where you will actually take profit.

5. Account for Commissions and Spread

If you trade CFDs or assets with problematic liquidity, do not ignore the spread. Sometimes it is exactly what turns an “ideal” trade into a losing one. This matters especially in gap stocks, where the spread can widen 5–10 times in the moment.

The main exit principle:

Your exit should not be a reaction — it should be part of the plan. You are not guessing where the market will reverse; you know where enough is enough for you.

Risk management is not about perfect numbers — it is about survivability.

And if you have a clear exit plan, the market can “test” you as much as it wants — your deposit will still remain intact.

Final Thoughts: A Strategy for Trading News and Earnings

Trading stocks on news is not chaos if you approach it systematically. The main thing is not to try to predict the market’s reaction, but to react to the fact of volatility itself. News is only the trigger. The reaction is mathematics, psychology, and risk management. This strategy requires not intuition, but composure: you are not “guessing” that the report will be good — you act when the market has already shown where it is going. Your task is not to argue with the move, but to fit into it before the wave fades. News stocks are the ideal tool for training discipline.

They force you to think quickly but act carefully:

1. see where volume creates impulse;
2. understand when guidance becomes more important than the fact;
3. use technique, not emotion.

The main rule is simple: the news sets direction, but risk control determines the result. Without risk management, any strategy turns into gambling.

FAQ

1. Why Do Stocks Rise on Bad Earnings and Fall on Good Earnings?

Because the market trades expectations, not facts. Good numbers may already be “in the price,” while bad numbers may turn out to be less severe than feared. What matters most is not the report itself, but management’s guidance.

2. Does It Make Sense to Enter a Trade Before Earnings Are Released?

Only if you have nerves of steel and a clear risk plan. Before earnings, spreads widen, volatility jumps, and even a correct forecast may not save you from a gap moving against the position.

3. When Is It Better to Trade — Before the Open or After?

Postmarket and premarket give an advantage only to experienced traders. If you are not confident about liquidity, it is better to wait for the main session, when volume stabilizes.

4. How Can You Tell That a Stock Is a “News Stock”?

The simplest way is to watch volume. If Relative Volume is above ×3 and the ticker starts appearing in news aggregators, the stock is in the market’s focus. These stocks usually create intraday impulses or strong gaps.

5. What Should You Do If a Stock Moves Sharply Against You After Earnings?

Nothing heroic. Close the position at your stop. Trying to “sit through” a –15% gap down is a bad idea.

6. How Long Should You Hold a Stock After Earnings?

As long as the logic still works and volume remains present. If the asset loses momentum the next day, it is time to exit. A trend without a news background runs out of steam quickly.

7. Can You Trade Earnings with CFDs or Leverage?

You can, but that is already a “high danger” mode. Because of volatility, even a small gap can burn half your margin.

8. How Do You Choose the Best Exit After News?

Watch for declining volume and slowing momentum. When candles become shorter and volatility drops, that is a signal to lock in profits.

9. Why Does a Stock Sometimes “Explode” Without News?

Because the news may be hidden inside the report, or the market reaction may be delayed. Sometimes institutions move the price while preparing for a large transaction, and retail only understands it afterward.

10. Is It Possible to Earn Money Trading Only News?

Theoretically yes, practically no. News is a catalyst, not a system. If you do not combine it with level analysis, risk management, and exit discipline, you will end up trading headlines instead of the market.