As you guys know, the earnings breakdown setup is one of my go to trades during earnings season. However, it's probably not quite in the manner most of you are thinking.
That's because most traders see a gap down off "bad news" as a short opportunity. However, that's not how I play them. I like to wait for the long reversal setup.
The reason is earnings breakdowns tend to be over-reactions to short term news.
Don't believe me?
Take a look at the gap downs in Netflix, Amazon, Google and Facebook over the past few years. You will notice that almost every gap down has not been a short, but rather a buying opportunity.
This entire process seems counter-intuitive, but here's a little trading secret. The best trades in this game are always the opposite of what most are thinking. That just seems to be the way trading works.
In today's video I show you my 7 favorite earnings breakdown stocks as we start earnings season. We analyze the stocks and I show you the exact setup entries I will look to trade.
Specifically, you will learn:
- How to analyze a gap down and put it on your watchlist
- Assess the over-reaction to news
- Key entry levels
- How to take profits
One last important nugget. This setup works best in up trending or rangebound markets. That means we can trade it most of the time! Just be careful when the market is in a down trend.
So watch, learn and let me know what you think!
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