The nearer the earnings seasons, the more unpredictable and volatile the market becomes, especially with juggernauts like Tesla and Alphabet. It has been a stirring action in the market over the past week, with breaking news and earnings reports pushing a whirlwind of opportunities and uncertainties. The challenge with this is, for active traders, how do you identify high-probability trades out of this chaos?
To implement high-probability setups during earnings season. If traders possess excellent knowledge of the market, especially regarding earnings and key indicators, they can work with high-opportunity setups due to being in concert with a market that may be flexible in their plans. Small caps, crypto names, mega-cap stocks like Tesla and Alphabet will present fantastic trade setups for those who can handle the volatility.
In this article, we dive into some of the proven-to-be high-probability earnings season strategies and setups. We show how to look for potential bounces, pullbacks, and breakout scenarios across small-cap stocks, key levels in crypto-related names, and post-earnings plays in mega caps. Traders can maximize these volatility genres by being prudent with respect to risk management timing to get better profitability.
Important Things to Remember for Traders
First things first: before getting into high-probability setups, it’s important to first take a bigger-picture look at earnings season. With phase two, or the meat of earnings season, about to get underway, market behemoths such as Tesla and Alphabet report earnings that could create ripples throughout the entire market. The various faces of the market last week were determined by breaking news and headlines, which means uncertainty—and with it, a deluge of opportunities.
Thus, the most important takeaway from here is always being on the pulse. Keep an eye on the earnings calendar and major economic events, and be prepared to change trading plans at any second if possible. The aspect of flexibility does not end with trade ideas alone; it pervades into covering risk management too. Be prepared for stops and position sizes to change mid-stream in heavier volatility.
Top Watchlist: Small-Cap Bounces
Some of the high-probability trade setups when it comes to earnings happen with small-cap stocks, especially out of the IWM ETF. If one is looking for a strong bounce play, then IWM is a tremendous opportunity. Recently, IWM broke out across multiple timeframes, providing both long and short opportunities to traders.
Here is the rationale behind a small-cap long entry:
- Entry: A quick wash lower below 216—Friday’s low—followed by a medium Snapback recovery. When IWM is back above its multi-day VWAP, this is potential bottoming action and a good starter position.
- Confirmation: IWM needs to hold above 218 to start scaling into the position. If the stock can begin to base above 218 and then break above Friday’s high, that confirms an uptrend is possible, and a full position can be added.
- Risk Management: Use a 15-minute timeframe to measure stops and look for higher lows as the trade progresses. Also, apply Average True Range to the chart as an indicator of target scaling. Important levels for covering: 222 and 225 on the daily chart.
The trader can actively utilize the IWM pullback and possible second-leg higher by following these steps.
Crypto Names: The Next Breakout Opportunity in Mara
Earnings season also shines its spotlight on crypto-related names. Bitcoin’s rally last week triggered momentum in names like Mara—share class Marathon Digital Holdings—which has been one of the hottest watches for crypto watchers. Traders that seek high-probability setups can start looking at Mara closely for a breakout.
Some important components of the Mara configuration include:
- Breakout Potential: Mara broke above a key level of resistance last week, which has now become support. This forms a platform from which Mara may begin an anticipated breakout during the course of the coming week.
- Entry Patience: Instead of immediately entering long, wait for further consolidation and higher lows to confirm that Mara’s breakout is, in fact, sustainable. Traders can start their positions going into this consolidation phase and look to add into volume when confirming a strong move higher.
- Entry Point: A further contraction by Mara before a price and volume breakout may present the perfect entry. Look for volume spikes and formations of a base that precede the breakout.
With Bitcoin on an ongoing rally, crypto stocks like Mara have the potential to provide very compelling opportunities to traders who will be patient enough to wait for a proper setup.
Momentum Trades in Small-Cap Stocks: SCV Example
The other high-probability play involves momentum trades in small-cap names. Last week, SCV gave traders the chance to play both long and short based on the stock’s short-term momentum. As always, momentum stocks give quick profits, but with them, timing is everything.
Approaching a momentum trade:
- Entry Timing: Sometimes, in momentum stocks like SCV, it’s important to time an entry into the blow-off top. The blow-off top is when price action dramatically spikes and squeezes out any remaining shorts. Usually, following a consolidation, this would be followed by a prices reversal.
- Backside Confirmation: Awaiting a backside confirmation that shows signs of consecutive lower highs, uptrend breaks, or VWAP cracks. On this confirmation, traders would have moved from a long mindset towards a potential short swing.
- Risk Management: With the speed these trades are on, scale out to major price levels and tighten stops to lock in profits.
For now, SCV is a top watch for short-term momentum plays, but one should be prepared to change and move toward swing shorts when the backside becomes clear.
Post-Earnings Plays in Mega-Cap Stocks
This earnings season, Tesla and Alphabet are the two mega-cap stocks that will be in the spotlight. However, instead of jumping into a trade ahead of the reports, it is better to wait for some kind of post-earnings set-up.
Here’s how to get ready to trade an earnings trade:
- Familiarize yourself with the key levels: First things first, it’s important to know the key levels in both Tesla and Alphabet before trading into any post-earnings setup. Knowing where support and resistance lie will help you form a solid trade plan.
- Observe Price Action post-report: Once the earnings report is out, follow the reaction of the stock. Does it break above resistance or fall below support? Allow the initial price action to guide you on your further course of action.
- Forming a Trade Plan: You should only form any concrete trade plan after analyzing the report, sentiment, and price action. Whether it gaps up or down, there is an opportunity to take advantage of the post-earnings volatility. This could be a breakout long or a reversal short depending on how the market digests the news. Patient traders—who wait for the dust to settle—can perennially capitalize on high-probability moves in such mega-cap stocks.
Conclusion
Earnings season can bring some very unique opportunities to proprietary traders if their focus is sharp on the right setups, with disciplined risk management. Whether it’s the small-cap bounces in IWM, breakout plays in crypto names such as Mara, momentum trades in SCV, or post-earnings strategies in the mega-cap Tesla and Alphabet, success comes down to preparation and flexibility.
This means that one should be in tune with the market, adjusting risks and always having a plan for every trade. High-probability setups don’t just happen; careful analysis and strategic execution make them possible. Applying these strategies during earnings seasons will help traders increase their odds of success and become profitable even