Using Earnings Data & Volume | Trading Lesson
Trading Fundamentals

Using Earnings Data & Volume

Master the art of leveraging earnings data, volume analysis, and technical indicators to make informed trading decisions while avoiding common pitfalls

For traders, earnings data and volume trends offer critical insights into a stock’s momentum and potential. In this lesson, we’ll explore how to utilize platforms like Earnings Whispers, MarketSmith, and Investors.com to track earnings dates, volume spikes, and relative strength. You’ll also learn how to avoid common pitfalls when trading on high earnings and develop a balanced approach by prioritizing price action over raw financials.

Learning Objectives

By the end of this lesson, you will be able to:

  • Use Earnings Whispers, MarketSmith, and Investors.com to monitor earnings announcements, volume, and stock movement
  • Recognize volume and earnings as indicators, while keeping price action as the primary driver for trading decisions
  • Identify potential topping patterns and avoid the common mistake of holding stocks solely based on strong earnings

Earnings Data Tracking

Earnings dates and growth metrics can drive stock price movement, but it’s essential to verify earnings dates and understand the implications of strong reports.

  • Earnings Whispers: This platform provides a calendar view to quickly check upcoming earnings. The instructor highlights how he glances through weekly earnings, cross-checking with other tools and noting specific dates for stocks he’s tracking.
    • Cross-Verification: MarketSmith and other platforms might have differing dates, so it’s recommended to confirm dates on the company’s website to avoid surprises.
  • MarketSmith for Earnings: MarketSmith offers a comprehensive earnings and sales overview. By scrolling through lists like Technical and Stock Reports, you can find companies with strong fundamentals and evaluate recent performance trends.
    • Example: With MarketSmith, you might review a stock like UPST, which showed impressive triple-digit earnings growth in consecutive quarters. However, price action showed a peak just before a high earnings report, emphasizing that price often tops out when fundamentals appear strongest.

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Importance of Volume and Relative Strength

Volume and relative strength are key indicators that offer a real-time look into market sentiment and institutional interest.

  • Investors.com: Known for its “Stocks on the Move” and Volume Run Rate sections, Investors.com helps traders filter stocks with unusual volume on major exchanges like NASDAQ. High volume spikes often indicate buying or selling pressure from large institutions.
    • Example: A stock like VCRA with unusual volume might catch attention during the day, prompting further review on price trends and recent news to determine if it’s a breakout candidate.
  • Relative Strength (RS) Line: In MarketSmith, the RS line compares a stock’s performance to the broader market. Stocks with strong RS lines, especially during down markets, often show resilience and potential for sustained gains.

Avoiding Earnings-Driven Mistakes

A common mistake among traders is holding onto stocks solely due to strong earnings and sales figures without considering price action. Here’s how to navigate this:

  • Watch for Topping Patterns: Stocks may peak around times of exceptional earnings. For instance, UPST’s triple-digit growth in late 2020 led to a surge, but the stock topped out as the fundamental growth continued, reinforcing that price action often leads fundamentals.
  • Prioritize Price Action: While strong earnings and sales are positive indicators, they should support—not dictate—your trading decisions. Stocks frequently top when earnings are at their peak, so consider using earnings as a secondary tool to confirm price trends.

Key Takeaways

  • Price action often leads fundamental data
  • Strong earnings can coincide with stock peaks
  • Use earnings as confirmation, not the primary decision driver
  • Always cross-verify earnings dates across multiple platforms

Enhancing Your Trading Strategy

Incorporating additional techniques can further strengthen your decision-making process:

  • Anchored VWAP (Volume-Weighted Average Price): This tool, popularized by Brian Shannon, helps track the average price institutions might be paying for a stock over time. Placing an anchored VWAP at a breakout point can show whether institutions are continuing to buy or sell.
  • Experiment with New Tools: Incorporating new indicators like anchored VWAP or refining relative strength analysis helps build a more well-rounded approach. Tracking tools over time improves your feel for their effectiveness and impact on trading outcomes.
Pro Tip: Use anchored VWAP as a dynamic support/resistance level. When price holds above an anchored VWAP from a breakout point, it often indicates continued institutional interest.

Action Items

  1. Track Earnings for Three Stocks: Using Earnings Whispers or MarketSmith, identify three stocks with upcoming earnings dates. Verify these dates across at least two platforms and note any discrepancies.
  2. Monitor Volume with Investors.com: Check Investors.com for the “Stocks on the Move” feature and choose a stock with unusual volume. Observe how the stock behaves over the next few days, particularly in relation to market trends.
  3. Add Anchored VWAP on a Trending Stock: Using your charting software, add an anchored VWAP to a stock experiencing a breakout. Track the price in relation to this line over time to gauge whether the breakout holds.

Conclusion

Earnings data and volume analysis are essential components of stock trading, but they should be balanced with a primary focus on price action. By understanding the nuances of volume and recognizing when price trends might peak, you can make more informed trading decisions and avoid common pitfalls. Continue to refine your approach by experimenting with new tools, confirming earnings dates, and integrating volume analysis to stay in tune with the market.