Hello my fellow traders and devoted padawans. One of my followers asked me to analyze NFLX, so here it is. Although NFLX is a great stock it is going to have fierce competition from Disney+ so if you are a long term investor, keep that in sight. But we are here to talk about what's happening right now on the chart. As you can see, NFLX has been rangebound for quite sometime now. This can be seen as a healthy consolidation before a push up but it also means we can take advantage of the swings within the channel to make an extra buck while we wait for a move up (if that happens). I am not in NFLX but after looking at the chart I may jump in for a quick swing trade here and there if the opportunity presents itself.
CHANNEL
So let's talk about how you can take advantage of the channel, which in my opinion is one of the easiest "patterns" (not really a pattern but you get it) to trade because it is in a defined range. Now if you look at the chart you will see that the channel has different levels of support and resistance. That is fine because channels can have sub-channels, which is perfectly normal. The issue with sub-channels is that it may be difficult to know whether the price will move to the support/resistance of the outer channels or if it is going to stay contained within the inner channels. That is why we need other indicators to give us clear signals, a specific one in this case: the Stochastic oscillator.
STOCHASTIC TO THE RESCUE
The Stochastic is a very good oscillator to use in rangebound markets because when combined with other metrics, patterns, and indicators, it can give us clear buy and sell signals. Here I am using it in combination with the channels support and resistance only because that is enough for our scenario.
Sell signal
In this chart I made it very easy for you to see that when the price moves up to the resistance (any of them) and the Stoch is in overbought conditions (above 80 or close to it if we are lenient, which works for our scenario) and crossed bearish (blue line below red) the price fell. That crossover of the Stoch lines would be your sell signal (look at the lines and circles).
Buy signal
Likewise, when the price touches the support (any of the support levels) and Stochastic is in oversold conditions (below 20 or around 20) and the Stochastic lines cross bullish (blue over red) the price moves up. That bullish crossover would be your buy signal.
No trading zone
If there are crossovers of the Stohastic but the price is not reacting to support or resistance, hold off and wait for a better buy/sell signal. Don't overtrade.
MOVING AVERAGES
Finally, you can see that the 14,21, and 50 emas are forming a big ema confluence, which is normal and expected in rangebound markets. You can also see that they become resistance and support to the price, depending on where the price is. If the price is squeezed between support/resistance and the emas, it may be safe to wait for a break above or below the emas even if the Stoch is giving a buy signal and price is on support/resistance. Look at previous price action and use your diligence.
CONCLUSION
This pattern is very easy to trade if you are discipline and don't overtrade but it is not going to last forever so you need to monitor that the price stays within the channel and that other indicators don't start showing bullish or bearish sentiment, which could signal the pattern is about to be broken. In this chart I didn't add other indicators because they are supporting the rangebound move, but on your own chart it is worth adding other indicators to help you identify if/when the pattern is broken and the stock starts trending up or down.
Another long analysis my dear chart warriors but this is a lesson you will like to take with you for other trades. It is easy and simple and carries minimal risks because you can exit as soon as the pattern is broken.
Share the love:
If you get anything out of this TA, please like the chart so it moves up and others can benefit from my work. A simple click on the like button goes a long ways.
Follow for more:
I have an outstanding winning rate (check my other charts). If you want the best entry/exits just follow me, you won't regret. Thanks a lot!
***The ideas shared here are my opinion, not financial advise to place trades. Please do your own research before buying/selling stocks***
CHANNEL
So let's talk about how you can take advantage of the channel, which in my opinion is one of the easiest "patterns" (not really a pattern but you get it) to trade because it is in a defined range. Now if you look at the chart you will see that the channel has different levels of support and resistance. That is fine because channels can have sub-channels, which is perfectly normal. The issue with sub-channels is that it may be difficult to know whether the price will move to the support/resistance of the outer channels or if it is going to stay contained within the inner channels. That is why we need other indicators to give us clear signals, a specific one in this case: the Stochastic oscillator.
STOCHASTIC TO THE RESCUE
The Stochastic is a very good oscillator to use in rangebound markets because when combined with other metrics, patterns, and indicators, it can give us clear buy and sell signals. Here I am using it in combination with the channels support and resistance only because that is enough for our scenario.
Sell signal
In this chart I made it very easy for you to see that when the price moves up to the resistance (any of them) and the Stoch is in overbought conditions (above 80 or close to it if we are lenient, which works for our scenario) and crossed bearish (blue line below red) the price fell. That crossover of the Stoch lines would be your sell signal (look at the lines and circles).
Buy signal
Likewise, when the price touches the support (any of the support levels) and Stochastic is in oversold conditions (below 20 or around 20) and the Stochastic lines cross bullish (blue over red) the price moves up. That bullish crossover would be your buy signal.
No trading zone
If there are crossovers of the Stohastic but the price is not reacting to support or resistance, hold off and wait for a better buy/sell signal. Don't overtrade.
MOVING AVERAGES
Finally, you can see that the 14,21, and 50 emas are forming a big ema confluence, which is normal and expected in rangebound markets. You can also see that they become resistance and support to the price, depending on where the price is. If the price is squeezed between support/resistance and the emas, it may be safe to wait for a break above or below the emas even if the Stoch is giving a buy signal and price is on support/resistance. Look at previous price action and use your diligence.
CONCLUSION
This pattern is very easy to trade if you are discipline and don't overtrade but it is not going to last forever so you need to monitor that the price stays within the channel and that other indicators don't start showing bullish or bearish sentiment, which could signal the pattern is about to be broken. In this chart I didn't add other indicators because they are supporting the rangebound move, but on your own chart it is worth adding other indicators to help you identify if/when the pattern is broken and the stock starts trending up or down.
Another long analysis my dear chart warriors but this is a lesson you will like to take with you for other trades. It is easy and simple and carries minimal risks because you can exit as soon as the pattern is broken.
Share the love:
If you get anything out of this TA, please like the chart so it moves up and others can benefit from my work. A simple click on the like button goes a long ways.
Follow for more:
I have an outstanding winning rate (check my other charts). If you want the best entry/exits just follow me, you won't regret. Thanks a lot!
***The ideas shared here are my opinion, not financial advise to place trades. Please do your own research before buying/selling stocks***
Comment:
Spectacular move in the after hour on earnings. Price on the top resistance:
