After Hour Trading (AHT) is one of those mystical (if not scary) words that most day traders will equate to gambling. However, there are (growing) number of players in AHT including human traders and algos.
You can see that AHT volume in specific stocks often surges upon the occurrence of market-moving events, such as earnings reports, pre-earnings announcements or M&A activity or sector specific news (such as shipping rate changes, etc.)
Let me make this clear, I do not do too much AHT trading however, I certainly do quite a few trades (mostly successful ones) during earnings seasons. I specifically like after hours earning announcements and I listen to their conference calls however most companies publish their results just before the conference calls on their websites (or file a SEC report before the call).
My AHT trading strategy is extremely simple. I only play longs for positive earnings. I also like the stocks which generally have a good volume day time (the same day as the earnings announcement). After the positive earnings have been announced the price of the stock generally spikes (I call this the first wave) and then it normalizes (generally within a few minutes). This is when I buy it. It is then very likely to spike once again (I call this the second wave) when more people hear or read about the earnings news. Generally it can take about 15-20min between first and second wave (can be longer or shorter). I then sell my positions near first wave highs and call it a trade! I don’t like keeping it overnight (nothing wrong with doing so) but I find it risky. If I play, make money and get out, that is the way I like it.
Please note, I go for a LONG play ONLY if the earnings beat the estimate at least with 10% or more. If not, I simply leave the stock alone and don’t go for a trade. I am extremely selective with AHT trades – the way it should be. Finding the stocks to fit with the above criteria could be somewhat challenging (and time wasting) but it is better to waste your time then your money!
Please note, after-hours trading is busiest in the first hour or two after markets close, before disappearing sharply. As financial markets become increasingly integrated with the advent of globalization, I expect the after-hours trading is likely to expand going forward. Watch this space.
I hope it helps.
PS: Zacks is a very good source that I use to see earnings calendar, estimates, etc. There are tons of other free websites where you can find all earnings related information.