Pre-Market Earnings Play

Entry Logic

• Entry trigger: Stock gaps up or down significantly after an earnings release in the pre-market.
• Confirmation: High volume (at least 10x the average pre-market volume) and a clear direction.
• Timeframe: 15-minute chart for the big picture, 5-minute for entry.
• Location context: Entry above a key pre-market resistance for longs, below a key pre-market support for shorts.
• Market condition: High volatility, earnings-driven momentum.

Exit Logic

• Profit target: The next major daily support or resistance level.
• Scaling out: Scale out 1/3 at a time at 1R, 2R, and 3R.
• Trailing stop: Use the 9-period EMA on the 15-minute chart as a trailing stop.
• Signal failure exit: Exit if the stock reverses and closes back inside the pre-market range.
• Opposite signal exit: Not applicable.
• Time expiration: Exit the trade by the market open.
• Momentum loss: Exit if the stock stalls and volume dries up.

Stop Loss Structure

• Hard stop: 1% below the entry price for longs, 1% above for shorts.
• Soft stop: A close below the low of the entry candle on the 5-minute chart.
• Max dollar loss: $750 per trade.
• Max percent loss: 1.5% of account capital.
• Structural stop: Below the low of the pre-market session for longs, above the high for shorts.

Risk Management Framework

• Risk per trade: 0.75% of account equity.
• Maximum daily loss limit: 3% of account equity.
• Maximum weekly loss limit: 7.5% of account equity.
• Maximum drawdown: 20% from peak equity.
• Risk-reward ratio: Minimum 2:1 required.

Position Sizing Model

• Sizing approach: Volatility-adjusted position sizing.
• Volatility adjustment: Reduce size if the stock is making extremely wide swings.
• Conviction sizing: Not applicable.
• Scaling in: Not recommended.
• Scaling out: At 1R, 2R, and 3R profit targets.

Trade Filtering

• Market conditions to avoid: When the earnings report is mixed or in-line with expectations.
• Specific setups required: A large earnings surprise (beat or miss).
• Stock/instrument requirements: Only trade stocks that have just reported earnings.
• Time of day restrictions: Trade only in the first hour after the earnings are released.
• Chop/news avoidance: Be aware of conference calls that can reverse the initial move.

Context Framework

• Trend direction: Trade in the direction of the earnings reaction.
• VWAP relationship: The price should be well above or below 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: At profit targets.
• Add size: Not recommended.
• Fast vs slow moves: Be prepared for very fast moves and have your orders ready.

Time Rules

• Optimal window: Immediately after the earnings release.
• Times to avoid: Trading before the full earnings report is available.
• Session notes: This is a high-risk, high-reward strategy.

Setup Classification

• A+ criteria: A massive earnings beat or miss with a huge gap and massive volume.
• A criteria: A significant earnings surprise with a strong price reaction.
• B criteria: A minor earnings surprise or a muted price 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: 40%.
• Avg win: 4R.
• Avg loss: 1R.
• Profit factor: 1.6.
• Expectancy: 0.6R per trade.

Failure Conditions

• The strategy fails when the initial earnings reaction is a head fake.
• Avoid when the market is in a risk-off mood and is not rewarding good earnings.

Psychological Rules

• This is a very emotional and volatile environment; stay calm and stick to your plan.
• Do not get greedy; take profits at your targets.

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.
• Weakest: In slow-moving, defensive stocks.