The post-earnings flag (or mini base) is a continuation pattern that emerges after a stock gaps up on strong earnings or another catalyst. Unlike buying directly on the initial gap, this pattern allows traders to wait for consolidation and refinement, providing a more manageable risk and higher conviction entry. This session will focus on identifying, entering, and managing post-earnings flags effectively.

What Is a Post-Earnings Flag?

Definition

A post-earnings flag is a short-term consolidation pattern that occurs after a stock gaps up on strong earnings or a catalyst. It typically lasts 1-5 days, allowing the stock to stabilize before continuing its upward move.

Why It Works

• Institutions use this period to absorb shares and build positions
• Consolidation near key moving averages signals strength, reducing the risk of overextension

Example: Asana (ASAN)

The stock gapped up on earnings, consolidated near the 10-day EMA for a few days, and then broke out of a small bull flag, continuing its move higher. This pattern provided a secondary entry opportunity with a tighter risk profile.

Post-Earnings Flag Formation in ASAN

Key Characteristics of Post-Earnings Flags

• Initial Catalyst: A strong gap-up on earnings or another major event
• Volume Behavior: Heavy volume on the gap day, followed by lighter volume during the consolidation phase
• Proximity to Moving Averages: The flag often forms near the 10-day or 20-day EMA
• Breakout Confirmation: A move above the high of the consolidation pattern on increasing volume confirms the breakout

Entry Strategies for Post-Earnings Flags

Primary Entry Points

1. Pullback Entry: Buy during the flag’s pullback into key moving averages (e.g., the 10-day EMA)
2. Breakout Entry: Enter as the stock breaks out above the flag’s upper trendline or the high of the initial gap day
3. Lower Timeframe Entry: For aggressive traders, monitor intraday charts (e.g., hourly) to anticipate the breakout and manage risk more effectively

Stop-Loss Placement

• Place the initial stop just below the low of the flag or the nearest moving average (e.g., the 10-day EMA)
• As the stock moves higher, tighten the stop to protect gains

Managing the Trade: Scaling and Risk Management

Buying in Pieces

Divide your position into multiple entries:

1. Initial position during the pullback
2. Add to the position on the breakout
3. Final addition as the stock clears the pivot high from the gap day

Risk Management

• Start small: Begin with a smaller position during the pullback, as the stock could dip slightly further
• Add size: Increase your position as the stock confirms strength by breaking out of the flag
• Adjust stops: Raise your stop as the stock moves in your favor to lock in gains while managing downside risk

Refining Entries with Moving Averages

10-Day EMA

This is the primary moving average for identifying support during the pullback phase. Stocks often pause here before continuing higher.

5-Day Moving Average

• Can be used to track the stock’s short-term character
• Provides early signals of support, but trades off the 5-day MA may require more patience before the stock resumes its move