Why Company Results Really Move Markets

It’s a busy time for the JSE and an exciting time for local investors. It’s earnings season. All publicly listed companies release their most recent financial results and investors pay close attention during these periods. These updates are crucial to making long term decisions about their portfolios. Money is being moved, portfolios rebalanced, billions of shares are bought and sold, and prices start swinging. There are opportunities in the market every day, for both short term traders and long term investors. But digesting all the information is overwhelming, and frankly – it’s easy to get lost in the numbers. Luckily, knowing what to look out for, and what it means can help you position yourself just a bit better.

What key numbers should investors actually look for in company results?

When a company publishes its results, the volume of information can be tough to wrap your head around. Revenue, net income, EBITDA, headline earnings, free cash flow… Where do you even start? There are a few important line items to look out for.
Revenue is the top line, the total money coming in, the total value of sales made. If revenue is growing, it usually signals demand is strong which is positive for a company. Net profit shows what’s left after expenses, and this is where you see if management is keeping costs under control.

Earnings per share (EPS) is another crucial figure. It tells you how much profit belongs to each share you hold, and markets often react to whether EPS beats or misses analyst forecasts. Cash flow also matters more than many realise because a company can show profit on paper but may still struggle if it doesn’t generate cash.
Most importantly, investors should pay attention to guidance. This is management’s outlook for the next quarter or year. Even if today’s results look good, a cautious or negative outlook can drag the share price down fast.

Why do share prices sometimes fall even when results look good?

It can be confusing. A company reports record profits, yet the stock drops. How does that make sense? The answer lies in expectations (based on the commentary provided by management in the earnings report).

Markets are forward-looking, and decisions are made based on what is expected to happen. Analysts and investors build forecasts long before the results come out. If a company delivers strong numbers but still falls short of those forecasts, the share price can sink. In the same way, if results beat low expectations, the stock can jump even if the absolute numbers look weak.

Another reason is guidance. Imagine a retailer reports booming sales today but warns that consumer demand is slowing. The share price may tumble, not because of what happened, but because of what investors now expect to happen in the upcoming periods.

Finally, sometimes good results trigger profit-taking. If a stock has already run up ahead of results, investors might sell to lock in gains, causing a short-term dip. In earnings season, the narrative often matters more than the raw numbers.

How much time do I need to spend watching the markets to trade successfully?

You don’t need to live in front of your screen. In fact, constantly staring at charts usually leads to poor decisions. The trick is to focus on moments of high activity or volatility, when opportunities are most likely to emerge.

For day traders, that might mean the first and last hour of the trading session, when volume spikes. For swing traders, scanning the market once or twice a day may be enough, looking to catch a reversal as it respects a technical level.

Setting price alerts and pending orders is another way to free up time while still catching the moves you want. If you trust in your technical levels – setting a buy limit order to catch the bounce means you don’t need to watch the chart at all!

Remember, trading isn’t a 24-hour grind. It’s about waiting for the market to come to you. You’ll make better decisions by being selective than by chasing every tick up or down.

How do I actually build and test a trading strategy, and find the one that works for me?

This is where the rubber meets the road. Spotting an opportunity is one thing, but building a repeatable process around it is what sets consistent traders apart.

Start with a simple idea. Maybe you notice that a stock often bounces off a certain support level, or that it tends to rally after strong earnings, or even a moving average crossover system. Write that idea down in clear, testable rules: “If the share price hits this level, I buy. If it falls below that level, I cut.”

Next, test it. You can backtest your idea by looking at historical charts to see how it would have worked. Did it play out often enough to make it worthwhile? Did the winners outweigh the losers? Many trading platforms also let you run simulations automatically.

You will quickly learn where the holes in your rules are – and adjust.

Once you think you’ve spotted an ‘edge’, paper trade it. Run the strategy in real time without using actual money. This shows you how it performs under current conditions and whether you can stick to the rules. Only once you’ve proven it works should you risk real capital.

If you need help paper trading – contact Rob at ProTrade who will show you what to do!

Building a strategy is an ongoing process. Markets change, and you need to learn to change with it. What worked last year may not work today. That’s why testing and reviewing are constant parts of the journey. The aim is to develop a system that feels natural to follow, one you can apply again and again with confidence, and ultimately, can adapt your strategy as the market changes.

The real opportunity isn’t in making one lucky trade. It’s in creating a process that allows you to spot many over time and learning how to execute them with discipline.

For most people, getting started is often the biggest hurdle… they don’t know which markets to focus on, what timeframe, where to put their levels, or even HOW to open a trade.

Brokers like ProTrade are designed to help you with this process – if you reach out to them, they will give you a personalised 1-on-1 trading session, so you can start turning ideas into action. Reach out to ProTrade at: [email protected].