Yesterday’s SMB U Trading Lesson was on how not to get ripped to shreads in a Bear Trap. Today, Gman tweeted in Pre-market that NFLX was setting up as a Bear Trap and that he would look to trade it long against 110 to take advantage of those who might be trapped trying to short. Let’s take a look at the chart to see what he was thinking.

The idea is that many traders are looking at this chart and they are counting on the fact that those who got long on the break bove 110 several weeks ago have stops below 110. They will short the break of 110 hoping to add more fuel to the fire and catching a move down to the next support area.

Here is how the trade played out from an intraday view today. First, take a look at the tick chart just as the market opens. NFLX monentarily drops 110 then quickly spike back up to 111. So a bit painful if you shorted when 110 dropped and weren’t quick to cover.

But there was a second chance to cover for a small loss. NFLX  touches 110 again and there are buyers waiting to support the bid. Perfect chance to get out of your short if you are not stubborn. And finally we see a large spike in volume indicating this area will be defended by longs and then an intraday reversal pushes NFLX several points higher.

Steven Spencer is the co-founder of SMB Capital and SMB University and has traded professionally for 16 years. His email is [email protected].

No relevant positions