Trading Systems for Stocks: How To Manage Earnings Data Releases?

by Andrea Unger

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On Earnings release days, namely data on a company's realized earnings, we can see increased volatility and even major gaps when the market reopens.

Having open positions at these times can impact the performance of our strategies, increasing their risk level.

So how do we avoid the effects of Earnings?

In this video we show you how to insert simple instructions within a trading system so that it avoids trading on Earnings days... Don't miss it!

By watching it you'll discover:

- What Earnings are and what effect they have on the performance of our strategies

- How to program a trading system to exit before the release of Earnings

- How to get the release dates 

All with a practical example on Amazon stocks based on an excellent open code strategy we presented in this video!

Transcription

Introduction

Hey everyone, welcome to this brand new video! One of the coaches at Unger Academy here and today we’re going to be talking about a crucial aspect of building trading systems designed for stocks, and more specifically about managing Earnings.

The Trading System

Alright, now on the screen, you can see an equity line for Amazon that we built together a few months ago in one of our videos. This equity line was built using a very simple trading system that we'll share with you here. 

This equity is very nice and very steady but still has little spikes now and then. We can see, for example, this one below. Let's zoom in on the equity line.

Do you see this spike? It represents an extremely large trade, much larger than the take profit, like these small trades that grow equity little by little.

And what makes these big trades that go beyond the take profit? The main cause is the gap that can occur overnight on stocks, of course, all the more so if during the market closing period, the Earnings are released. 

On these dates, indeed, the market may be much more volatile than usual, and we may find ourselves, when it reopens the next day, with very large gaps.

Let's go and see, for example, what might happen. Here you can see some entries and exits. After that, you’ll find something like this, with a profit target taken at the opening.

Let's say that this event was particularly lucky. If we were to go and see how much this system made at this point, it would be well above double or triple the set take profit.

This solution could be convenient in case there are very positive Earnings, but equally inconvenient if there are negative ones.

For this reason, it might be very useful to include in our trading system something that recognizes the Earnings date of this stock and exits at the end of the session preceding the release of this news.

This can be done by using databases that can be found online to go and extrapolate the official Earnings release dates.

In this way, we could backtest the behavior of our trading system if we had always exited the day before an Earnings release.

Of course, in this case, it would have been very inconvenient. But again, the most important thing in building trading systems is risk management. And I certainly wouldn't want to take the risk of a negative Earnings release, as what recently occurred, for example.

If we went and checked all the equity curve, we would see, for example towards the end, something very similar here, with a single trade much worse than the other stop losses.

How To Manage Risk

So we could go and add this small condition, namely: if we found ourselves at the Earnings date, we could exit our system with a "Set exit on close", which means exit at the end of the session.

So, let's compare our previous trading system with the new trading system. You can see that I added an "End of day exit" here and on the day before, to be a bit more sure that there isn't extreme volatility also the day before the last day before Earnings…

You can see that the system is virtually identical. If we went to look for other trades in other periods away from Earnings, we'd find the same trades. You see this one here, this short entry and so on.

What matters, of course, is, as I said, to stay out of this excessive turbulence. So, let's go through the equity line again now. This was the original equity line with these little spikes, and let's compare it to the new equity line, which is this one here, which is more steady and less abrupt, especially towards the end.

Results

This system has been out-of-sample for at least 6 or 7 months, so it was made around the beginning of 2022.

So, we know very well that the stock market has plummeted recently, but this system seems to be holding up quite well, especially if we take off the risk of having an open position before the release of important news on this stock.

How To Get the Data

Lastly, I’d like to tell you how I derived all the Earnings dates.

Simply relying on the available data that TradeStation gives, through a very small script written in EasyLanguage, through the keywords "Get Fund Post Date" I went and got a very simple database, namely a .txt file, which showed all the dates of the Earnings from 2010 to the present, and also those of this year so that my system automatically leaves the market at the end of a session the day before an Earnings release.

And that's that! And we hope that you did find this video helpful.

If you need help to get started investing in the markets through systematic trading as we do here at Unger Academy, I'd recommend that you click on the link below, which will take you to a page where you can find very useful resources. From there you'll be able to register for a free presentation by Andrea Unger, also go and get our best-selling book "The Unger Method" covering only the shipping costs, or you can even book a call with a member of our team to get a free strategic consultation.

Finally, I'd just like to remind you, if you have not already done so, to subscribe to our channel and click on the bell to stay updated on the release of all our new videos, and leave us a like.

Hey, also please write here in the comments if you have any topics that you'd like us to explore in more detail.

And with that, thanks so much for having followed us this far and we'll see you soon in our next video. Bye-bye for now!

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Andrea Unger

Andrea Unger here and I help retail traders to improve their trading, scientifically. I went from being a cog in the machine in a multinational company to the only 4-Time World Trading Champion in a little more than 10 years.

I've been a professional trader since 2001 and in 2008 I became World Champion using just 4 automated trading systems. 

In 2015 I founded Unger Academy, where I teach my method of developing effecting trading strategies: a scientific, replicable and universal method, based on numbers and statistics, not hunches, which led me and my students to become Champions again and again.

Now I'm here to help you learn how to develop your own strategies, autonomously. This channel will help you improve your trading, know the markets better, and apply the scientific method to financial markets.

Becoming a trader is harder than you think, but if you have passion, will, and sufficient capital, you'll learn how to code and develop effective strategies, manage risk, and diversify a portfolio of trading systems to greatly improve your chances of becoming successful.