Last weekend I posted this analysis of the NFLX price action plus the chart below:
2021-08-15 Sunday: Over the past four weeks NFLX has squandered numerous opportunities to begin a longer-term rally based on a bullish setup. The lower band of a rising 8 SMA is a very good location for a long (bullish) trade. The low at #1 from three weeks ago should have triggered a strong rally if buyer’s were motivated. The lack of a rally indicated that buyer’s were not motivated there and the fact that price has remained within the lower half of the 8 SMA bands while the bands are still rising isn’t necessarily bearish since the bands are sloping up however the lack of upside follow-thru has me watching for a potential breakdown! I’ve set a price alert to trigger on a drop below last month’s 504.66 low.
Was I right or was I wrong with that analysis? Neither. There is no right or wrong in my analysis. Well, that’s convenient isn’t it? 😏 The reason I say there’s no right or wrong in my analysis is because I never make a prediction of what price is going to do. That’s entirely unknowable and anybody who tells you they ‘know‘ what price is about to do is either lying or delusional! I set parameters where price should or shouldn’t do something if my expectation is to be met and I place my trades based on my expectations. So let’s examine the NFLX post from last week and see what happened.
The main takeaway from last weekend’s post was that buyer’s were unmotivated as evidenced by the fact that price wasn’t rallying from multiple touches of the rising lower band of the 8-week SMA. Every analysis is a two-sided coin. Buyer’s weren’t strong but neither were the sellers! The bottom of the price spikes for the weekly candles labeled 1,2, and 3 found no acceptance by sellers meaning that, by the close of each week, price had rallied an average of 11 points away from that week’s low. I mentioned how important the 504.66 low was for the sellers. That’s the bull/bear line. As long as price was above that level the bulls were in charge even though they weren’t entirely motivated. It would take a break of 504.66 to the downside to turn bearish and even that level is that two-sided coin again! In other words, below 504.66 is bearish but if price had dropped below that level and then reversed back above it that would have been an extremely bullish failed breakdown! You will never be successful at analyzing price if your analysis simply states “I’ll get long above a certain price or short below a certain price” without also saying “if price reverses near those levels I’ll flip my analysis and expect the exact opposite price action”. That’s the failed breakout or breakdown effect! A breakout is bullish, a failed breakout is bearish. A breakdown is bearish, a failed breakdown is bullish.
Price never was able to take out the 504.66 low to the downside as the seller’s weren’t strong enough! And the buyer’s who weren’t motivated last week became very motivated above last week’s 522.67 high. That’s when this week’s candle went 2 up (2u) which means a higher low and a higher high.
The lesson to be learned here is that traders who refuse to flip their bias or expectations when price fails to follow thru on their original thesis will likely never be successful. Failed moves happen all the time and they are some of the best opportunities to have a profitable trade. Ignoring those signals that the price action has ‘flipped’ and sticking with your original trade leaves you ‘hoping’ that price will turn once more to give you a profitable outcome. It’s an old cliché on Wall Street that hope is not a strategy. I can promise you that there’s never been a truer statement regarding trading!
Questions or comments? Post it and let’s discuss!