Since the beginning of the year FEYE had been consolidating between 38 and the mid 40s. It has had a lot of positive news flow this year but had many failed breakout between 45-46. I made a conscious decision not to get long in the mid 40s until it cleared all resistance for the year on heavy volume. On May 28th it had that breakout after spending three days in a tight consolidation at 45.

With buyers firmly in control I decided to get long for a move to 49-50. My planned entry price was just above the recent consolidation at 45.50. My stop was below 45. I used an automated “script” to execute the trade. Parameters included trigger price for entry, stop price, and profit target.

The day prior to the “script” being triggered FEYE closed around 46.80. The next morning I was banking on a “shakeout” prior to resumption of the new uptrend. This sort of dropout is most common right as the market opens before trends are established for the day.

You can see in the chart below where I entered the trade on Day 2. The pull back area from the opening drive on Day 1 offered a great entry price as it fell just above 45.50 area where FEYE had failed to breakout multiple times in April. Resistance becomes support…

Steven Spencer is the co-founder of SMB Capital and SMB University which provides trading education in stocks, and options. He has traded professionally for 18 years. His email address is: [email protected].

Steven Spencer is currently long BRCM, KING, LOCO, MNGA, OHRP, UNP, WMT, ZU and short AMBA, AMGN, HRTX, NQ, SPY, TWTR, VZ