Spotting Power Earnings Gaps

Most importantly, the stock must close near its highs for the day, showing strong buying pressure and momentum continuing into the close. To identify PEG stock candidates, screen for stocks that gap up a minimum of 5% on earnings news and see trading volume 3x the daily average or higher. Analyze the daily candlestick chart and only select those that close within 1% of the high. This confirms strong follow-through buying into the close.

Identifying a Power Earnings Gap stock

A true Power Earnings Gap stock must show a significant gap up move on strong earnings news, with the price increasing by 5% or more from the prior day's close. Volume also needs to spike, with shares traded coming in at a minimum of 3 times the average daily volume. Most importantly, the stock closes near its highs for the day on the earnings announcement date. Additional factors like sector strength, overall market conditions, and short interest levels are also considered.

Entering the Trade

Instead of trying to hold stocks through their actual earnings reports, consider entering PEG stocks in the days after. Watch for bullish continuation patterns like flags, pennants, or ascending triangles to form as the stock digests its post-earnings move. These consolidation patterns provide lower-risk entries, with tight stop losses placed under the pattern low. Once the pattern breaks out, traders can enjoy the potentially massive extended upside moves these PEG stocks are capable of over the following weeks or months.

Managing Risk

It's critical to size positions appropriately and use strict risk management when trading PEG stocks. Given the outsized upside potential, risking no more than 2-3% per trade is recommended. Tightening stops to breakeven or small profits helps to let winners run while limiting losses on any failures to launch.

In Conclusion

Focusing trading efforts on Power Earnings Gap stocks has several clear advantages, including avoiding unnecessary risk, following in the footsteps of big money, leveraging short interest for upside potential, and using technical analysis skills for lower-risk entries. By focusing on stocks that have genuinely 'arrived' through strong earnings and price action, traders stand to generate outsized returns by trading the ensuing short-term trends and patterns with a systematic approach.

๐Ÿ“ฎFAQ

Some Frequently Asked Questions.

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For a stock to be considered a Power Earnings Gap, it typically needs to gap up a minimum of 5% on strong earnings news. Anything less than 5% may not provide enough momentum potential.

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Two good resources for checking short interest percentages are ShortSqueeze.com and FinViz.com. ShortSqueeze provides the actual short interest figures, while FinViz lists it in the stock details. In both cases, 10% short interest or higher is looked for in PEG stock candidates.

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Common chart patterns to watch for as potential entries include bull flags, ascending triangles, bullish pennants, and sideways consolidations/wedges. These continuation patterns often form as PEG stocks digest their post-earnings moves and can provide lower-risk entries with defined stop losses.

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For a stock to be considered a true Power Earnings Gap candidate, it typically needs to see a volume spike of at least 3x the average daily trading volume on its earnings gap up day. This helps validate heavy institutional buying interest.

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Due to the potential volatility of PEG stocks, especially on the day of and days following earnings, position sizing between 2-3% of the total trading account is recommended. This helps limit risk on any trades that don't work out.

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