This thread is relevant for those who trade stocks. I had painful experience with huge gap-downs when a company announces their earnings and the earnings results disappointed the markets. Even when the earnings looked wonderful to me, the stock can sometimes still drop in double-digit percentage. Stops are useless against gap-downs of such magnitudes. The gap-down magnitude is particularly huge for U.S stocks due to Regulation FD (Fair disclosure).
This is the dilemma I have. If I sell every stock in my portfolio before earnings are announced, I will never get wonderful gains because wonderful gains are reaped when a trader holds his position long enough. Furthermore, the stock can also experience huge gap-up on earnings outperformance. If I don't sell stock before earnings, stops don't work and I cannot think of any other risk management measure against the gap-down risk.
This is certainly an issue worthy of risk management. Can the experienced traders here advise how they manage this painful risk? Thank you very much.
This is the dilemma I have. If I sell every stock in my portfolio before earnings are announced, I will never get wonderful gains because wonderful gains are reaped when a trader holds his position long enough. Furthermore, the stock can also experience huge gap-up on earnings outperformance. If I don't sell stock before earnings, stops don't work and I cannot think of any other risk management measure against the gap-down risk.
This is certainly an issue worthy of risk management. Can the experienced traders here advise how they manage this painful risk? Thank you very much.
