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Some setups look flawless at first glance, but once you dig deeper you find the one thing that disqualifies them entirely — like they’re being pushed around by earnings or major news.
And when that happens, all the clean technicals in the world won’t save the trade. This is something that shows up in the market every day, and it’s one of the most common traps traders fall into.
One thing that helps cut through the noise is focusing on stocks that aren’t just technically clean but are also leaders in their sectors. When a name is carrying its industry, the price action tends to be smoother and more predictable, which is exactly what you want when you’re evaluating whether a mean-reversion setup is legitimate or distorted by outside forces.
The Take-Two Lesson
I was looking at Take-Two Interactive (TTWO) a while back, which technically showed a pattern that maybe would have worked out or broken even. The setup looked textbook — exactly what you’d want to see for a fade play.
But here’s the problem: I don’t want to trade stocks coming off earnings tailwinds or big news tailwinds because we don’t know if TTWO is going to fill the gap or attempt to fill the gap lower — there’s just too much news in the stock.
This is a perfect example of why technical analysis alone isn’t enough. When fundamental factors are driving price action, our normal mean-reversion expectations get thrown out the window.
I look to avoid stocks that are being manipulated with news or squeezed, like GameStop (GME) or AMC Entertainment (AMC) because there are too many external factors going on. We want a very natural, smooth market movement, ideally from stocks that have already proven themselves through strong, steady sector leadership.
This is also where having solid tools comes in. Before making any decisions on overnight setups, I rely heavily on a scanner built specifically to surface stocks that are moving cleanly and in a way that fits my strategy.
The goal is simple — find names that have reverted to the mean without the distortion of news or earnings, giving the trade a fair chance to work.
The Two-Week Rule
So how do you identify these problematic setups? It’s not until the earnings day or after that I would avoid it — that’s my general guideline for pre-earnings situations.
But post-earnings is where traders really get trapped. A move can look completely natural even though it’s still echoing the earnings reaction, which means your fade setup might be fighting forces you can’t see on the chart.
Trading post-earnings can be unreliable — after an earnings pop followed by consecutive down days, you might think it’s a good time to fade, but because it’s trading on news, it could just keep going down.
The key is timing. I use roughly a 10 to 14 day buffer period to let the dust settle from any earnings reaction. Sometimes you’ll see a stock like Nvidia (NVDA) where someone might worry it’s too close to earnings, but as long as you’re not right on top of the event or in the immediate aftermath, the price action is usually clean enough to evaluate.
Once that window passes and volatility drains out, you can rely on the chart again.
I even encountered what looked like a pretty perfect setup that was finding support at the 50-day moving average, but because it was right after earnings, I had to pass. If it wasn’t right after earnings, it would have been like the perfect setup.
The bottom line? Don’t let a beautiful chart pattern seduce you into ignoring fundamental catalysts. Sometimes the best trade is the one you don’t take.
Graham Lindman
Graham Lindman Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.Â
P.S. It’s Not the Time to Chase for 20x MoonshotsÂ
With volatility elevated and fear overtaking the market…
You might not see the typical surge that happens during regular market hours…
And I’ve laid out a setup that’s able to spin a tiny 1% stock move into a 100% options payout.
