Anybody who was long FB had a good week. After price appeared to be breaking down on Monday when it closed below the previous week’s low (blue box showing the previous week’s high, low and half-back prices) it rallied strongly into Friday’s close. I labeled 2 candles with a number; Tuesday’s candle is #1 and Friday’s candle is #2. There was probably many traders who got long FB Friday afternoon on the breakout and that may turn out to have been a good buy location. However, if Friday was good location then the Tuesday morning buy location was a whole lot better! Let’s take a close look at the Tuesday morning bullish trigger.
Monday was a clear breakdown below the previous week’s low. Tuesday’s open was well above Monday’s low and price immediately began moving higher. Once it moved back above the previous week’s low at 263.67 that made Monday’s price action a failed breakdown. Failed signals are the best to trade on! A bullish trade should have been initiated once price cleared 263.67 to the upside. The stop price then should’ve been price acceptance below Monday’s low at 259.88. That’s a simple but effective way to initiate a position using nothing other than the previous week’s range. I often like to have more than one setup pointing in the same direction as the weekly range setup.
I closely follow the 8 and 20 day SMA’s. Buyer and sellers rely on those moving averages to determine trend. Obviously a bullish trade initiated using the previous week’s range failed breakdown is more likely to be successful if the 8 and 20 are providing support.
Seeing that the 8 and 20 SMA’s are providing support makes the bullish trade location more reliable. In fact, based on these 2 moving averages alone, I should have been looking for a bullish trade early last week when price fell below the lower band of the rising 8-day SMA. As always with moving averages, their slope is the key. If the 8 SMA was flat instead of upward sloping it wouldn’t have confirmed a bullish trade initiation.
This has been a good example of catching a good trade location in a stock. With FB in particular however, I won’t be taking any trades, bullish or bearish, this week due to earnings announcements. Questions or comments? Tweet at me.