Trading bank shares around results – what’s the best strategy?

Trading bank shares is always popular in the spring. That’s because reporting season brings an average trading range of over 5% for the likes of Barclays, Lloyds, RBS and HSBC. That is the scope for share price action that short term traders crave.

What’s more, the days leading up to a bank’s earnings report can also see trends forming – trends which may intensify or reverse upon the results announcement. On top of this, since Lloyds, Barclays, RBS and HSBC last reported (FY 2015) their respective share prices have fallen by up to 8% on the back of continued equity market turbulence and Macro-economic uncertainty.

1. Trade now

You may already have identified a clear price trend, and noted that the bank’s outlook is sufficiently bullish or bearish to make the case for opening a position right now. With an Accendo Markets trading account, you’re able to speculate on both rising and falling prices – something your traditional shares account doesn’t allow – so whatever your view, there’s an opportunity for you.

You can buy or go short the UK banks’ shares today with one of our trading accounts. We partner with  the leading providers to bring you the best platforms in the business whether you trade shares, CFDs or spread bets.  Then we add the best customer service in the form of a dedicated account manager who’ll give you the information and support you need, when you need it. That’s why investors are deserting the advisory brokers and trading bank shares with Accendo.

Many investors understandably want to wait and see at what price the stock will begin trading on results day – results usually come out early in the morning, before the market opens. Then, one of the following two strategies might work.

2. Trade on or after results day with a momentum approach

Momentum investors or ‘trend followers’ aim to profit by jumping on the bandwagon – that is going with the majority. If the majority are buying the price will rise and vice versa.

They will typically say “If the results are good and the price is called to open higher, it’s likely to continue to move higher, so I’ll buy. But if they’re bad and the price is set to open lower, it’ll probably keep going lower so I’ll want to sell (‘go short’).” Placing two orders – one to buy at a higher level and one to sell at a lower level – means that one of them will be triggered automatically, whatever the price does on results day.

3. Trade on or after results day with a contrarian approach

Contrarian or ‘counter-trend’ investing has arguably fared best so far in 2016, with many markets in volatile sideways ranges. Contrarians look to buy as the price approaches historic levels of support and sell (go short) as the price approaches historic levels of resistance. They look to exploit those trend followers who, gripped either by panic (in a downtrend) or mania (in an uptrend), arrive late to the party. Warren Buffett has been very successful investing in this way.

Which strategy is best for trading bank shares around results? Good question. We’re certainly not saying that either of these strategies are fail safe ways to make money – unfortunately that’s not how the markets work.

However, as consensus builds slowly in the run up to results day, the investor may use a momentum approach to trade bank shares. On the day itself, with the added possibility of short, sharp price moves, a contrarian approach might be preferable – as someone who knows what to expect, you’ll want to capitalise on other investors’ nervousness!

Our dedicated account managers regularly alert clients to shares that are trading at or near historic highs (resistance) and lows (support), shares that have broken out either above or below these levels and up to the minute breaking news. Lately, we alerted clients to the fact that Barclays shares were near 4-year lows. They’re now up 18% from those lows.

Read on to see our projections for the UK banks ahead of the Q1 reporting season.