Should You Hold Your Stock Through Earnings Season?

Earnings season can be a time of great opportunity for a trader or investor. However, earnings season also presents some challenges, since a company's earnings report often results in increased volatility of the underlying stock.

Below is a weekly chart of Logitech (LOGI) which reported earnings last week and advanced on above average volume. The stock's pattern is a 50/50 Strategy High Riser with a textbook pullback to a rising 50 EMA.

What would you have done if you had owned this stock prior to the earnings announcement?

Below are some general guidelines for making decisions about stocks you own in your portfolio.

• If you have a profit of 20% or more in a stock, it is generally okay to hold through the earnings report (especially in a strong bull market) since there is a profit cushion to protect against a downside move.
• If you have a profit between 10% and 20%, you're still in pretty good shape, but you may want to consider selling a portion of your shares to reduce overall risk before the earnings are announced.
• If you have a profit of 10% or less, your risk is much higher for a potential loss. You may want to consider exiting the stock position and waiting until after earnings are announced to decide on further action.

These are only guidelines. Trade risk is subject to a multitude of factors, including the overall market strength, how long a stock has been trending, and the stock's price pattern (volatility, momentum, etc.)

The rules for making "new" stock purchases are different, and I'll cover that in part II.