| | | | Midpoint Reversion Strategy After Earnings Announcements: Trading the Gap Fill Pattern
Here's something I've been thinking about that could completely change how you approach earnings plays. What if I told you there's a pattern so predictable that it happens more often than not — and most traders completely miss it?
I'm talking about stocks reverting back to the midpoint of their earnings gap ranges. This isn't some theoretical concept — it's a phenomenon I've observed repeatedly across major stocks, and it's rooted in how institutional money actually operates in the market.
Think about it this way: Apple (AAPL) jumps up $15 after earnings, but by the end of the day it's only up $7. What happened? The stock came back to the midpoint of that initial range. I'd bet you'd find this happens a whole lot more than not.
The Netflix Example That Proves the Point
Let me show you exactly what I mean with a real example. Take Netflix (NFLX) during a recent earnings announcement. The stock gapped down significantly on earnings, creating a range from where it closed the previous day to the pre-market low.
Here's where it gets interesting: NFLX came right back up to the midpoint, maybe a little bit higher than the midpoint of that whole earnings range. Even though the headlines said NFLX was down from the previous day because of earnings, look what happened since the open — it went up.
This means if you tried to short it at the open, you got hung. The stock simply reverted to the midpoint of that overall earnings range and found its equilibrium there.
Why Wall Street's Order Size Creates This Pattern
The key to understanding this strategy lies in recognizing how institutional money moves. When Wall Street places orders, they're not set up to only buy a few shares at a time like retail investors. Instead, they're adding thousands, if not tens of thousands of shares to their portfolios all at once, oftentimes across multiple Wall Street institutions.
When these orders trigger all at once, the size of the demand is usually enough to drive the stock price higher almost immediately. This creates the predictable reversion pattern we can trade around.
The beauty of this approach is its consistency. Whether a stock gaps up or down on earnings, institutional behavior creates these midpoint reversion opportunities as smart money systematically builds positions at better prices than the initial emotional reaction provides.
Understanding this pattern gives you an edge that most traders miss entirely — the ability to position yourself alongside institutional flow rather than against it. | | | | |
|
|
0 Response to "Midpoint Reversion Strategy After Earnings Announcements: Trading the Gap Fill Pattern"
Post a Comment