Earnings Gap Down Reversal
How effectively are you swing trading the earnings gap down reversal setup?
Most likely not well, if you even trade the setup at all. Neglecting this setup is an unfortunate and expensive mistake that often does not show up in your trading stats. As a result, specifically the earnings gap down reversal, you are not profiting from one of the most consistently profitable low risk-high reward setups around.
Here is why it's neglected: the average swing trader doesn't know how to trade gap downs!
Most commonly accepted gap down theories (remember most common theories don't work!) focus on shorting the gap down as a downside continuation trade. The idea here is the downside momentum catalyst leads to a continuation move. This sounds great in theory, but in practice, it often plays out different.
Gap downs in momentum stocks that are not yet in full-fledged downtrends often reverse while flashing strong long entry signals. In other words, while most are looking to short, profitable traders are stalking countertrend long signals.
This is another classic setup where it pays handsomely to go against the crowd.
In today's video, I show you how and why I entered Netflix ($NFLX) using the earnings gap down reversal strategy. The trade also illustrates the moving average remount setup and the moving average sandwich exit strategy.
You will learn how to:
- Trade the earnings gap down reversal
- Apply the moving average remount setup
- Analyze moving averages for entry and exit signals.
- Apply solid risk and trade management concepts.
Remember, our example is another in my series of live trade videos which makes it must watch: you'll get into my head and see exactly how we plan and manage the trade as it develops. I'll be back with another video on the exit.
This video is the second in the "Live" trading series. Check out the first video to understand how $BRZU made our watchlist.
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