Bolt Before the Report

It all comes down to self-discipline because the big score also opens you up to the big loss. Still don't believe me? Go back through your trading records, add your earnings winners and subtract your earnings losers. It's highly doubtful you're basking in the green glow of the plus column after two years of holding positions through these volatile events.

While risk through the news release is unacceptably high, the speculative period ahead of the report offers a great playing field because we can ride the coattails of trader-gamblers taking unwise positions or overplaying their hands. To engage in this predatory strategy, keep an updated list of release dates and pull up the most volatile issues in real time, looking for blind speculation or other inefficiencies that might yield good trades.

The hit rate for this strategy is amazing because there's a huge amount of dumb money acting and reacting ahead of big reports. As you'll note when stalking price action into these events, greed and fear persuade weak handed traders and ill advised investors to bid prices into extreme levels. Of course, insiders quietly fan these emotional flames because it will yield better prices to buy or sell short after the news.

The pre-earnings game starts a few days before the release, as you can see with the Goldman Sachs(GS Quote) rally between Thursday and Monday afternoon. In a bullish scenario, look for prices to push into an old high or through a resistance level. Pre-earnings rally momentum can last into the final minutes ahead of the release so don't exit positions too quickly. Invariably, the laziest gamblers in the group will be checking the calendar and jumping in right near the close.

Goldman Sachs (GS) Source: eSignal

How should you handle your long-term investments during earnings season? Well that's another ballgame entirely. Investors can't worry about short-term swings because high volatility is just part of the game. However, these folks can still reduce risk if they choose by purchasing options pairs that dampen the effect of sharp movement in either direction after the news.

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Alan Farley provides daily stock picks and commentary with his "Daily Swing Trade" newsletter.

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Know What You Own: Major financial stocks include JPMorgan Chase(JPM Quote), Citigroup(C Quote), Wells Fargo(WFC Quote), US Bancorp(USB Quote), Bank of America(BAC Quote), Deutsche Bank(DB Quote) and Morgan Stanley(MS Quote). For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.