Bolt Before the Report

Welcome to second-quarter earnings season. The next three weeks of reports, surprises and disappointments will increase both opportunity and risk for traders and investors.

Unfortunately, most of us will get caught up in the excitement of this volatile period and make really dumb mistakes. We'll also fail to grab onto the low-hanging fruit because we're hypnotized by facts and figures and frozen by fear of the unknown.

The best strategy in the next few weeks is also the hardest one to follow if you're vulnerable to the gambling side of the trading game. Simply stated, play a stock aggressively into the minutes ahead of an earnings report but get out before the numbers are actually released. Then, after volatility dies down, examine the crowd's reaction and trade back into the position, if it still shows a good opportunity.

You heard that right. I said to get out of the market before the company actually releases its report. This small detail stands against the babble promulgated by analysts in chat rooms and on stock boards. It also goes against our hard-wired gun-slinging mentality that falsely claims we're smarter than anything Mr. Market can throw at us. ...