Once apart of the famed FANG stocks, Netflix (NFLX), is putting in one of the most common bearish chart patterns there is, a head and shoulders pattern. As you can see in the video below, this is one of the more clear cut patterns we have seen in recent memory.
What you will see is price attempting to go higher a total of three times. Two shoulders and one head with each time price failing to break higher of the highest point, or the head. What traders typically wait for is the break of the neckline, which ends up forming the base to this pattern.
Given the markets weakness and character change over the past couple weeks, this could help this pattern and move along. If the market continues to show weakness, this could trigger a break of that neckline and send the stock careening lower.
This is a set up we really like within The Profit Machine because it allows us to very simply trade on along the guidelines of our system, which is clear set ups that are driven by price levels. These levels either form support or resistance levels that when broken can confirm a trade in one direction or the other.
In this case, as we have already stated, this is already a bearish pattern, so there is no real reason to play this move to the upside. The best trade here, the one that offers the best risk/reward, would be to play the downside. If the stock pushes higher, then you can enter with a stop set above the head.
However, if the neckline is broken and you want to get in the trade, your stop would be set above the second shoulder. Either way, keep this trade on your watchlist, or simply pay close attention to get more practice and experience spotting these formation and seeing how they play out. One of the best things a trader can do is get as much screen time as possible. Now is your chance.
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