Tuesday, March 24, 2015
Monday, March 23, 2015
Saturday, March 21, 2015
After many months of sideways action, one of my favorite long-term holds FB (Facebook) finally broke out to a new all-time high this past week.
As you know, I have been a fan of Facebook - the service and the stock - for quite some time. This story is one of those rare confluences when my first hand experience with a product becomes an investment thesis and makes money. It doesn't happen all that often, but when it does it can be rewarding.
The chart above shows my interpretation of the Fiblines for Facebook as well. Recall from my prior blog post here that I had an earlier interpretation for FB which showed the entire Fib sequence terminating at the 423% line at about $80.89. That area served as resistance for some time, but once it was breached, I reconsidered the levels and came up with the new interpretation which is shown above.
Note how the tree line at 80.51 served as resistance for some time but was finally breached decisively to the upside this past week. From there we can see the a number of levels above with minor snow lines at 83.30 and 85.86 and the next tree line at 89.28. After that, the next major fire line is overhead at $100.45. That fire line is only the 161.5% move of the original wave 1 so I think Facebook will eventually go much, much higher.
Some of the price action this past week has to do with news that you will soon be able to send money through Facebook. As I have said previously, its only a matter of time before we will be making phone calls and video calls through Facebook. We already use is as a messaging platform and it allows me to stay in touch with people in ways I never could before. Facebook owns 100% of Instagram which serves a much younger demographic than FB and has yet to monetized.
As for the Fiblines, recall that you can get them for free for Thinkorswim for free, just send an e-mail to firstname.lastname@example.org.
Have a great weekend and week ahead.
Posted by C. Smith at 5:58 AM
Saturday, March 7, 2015
Active Trading involves so many decisions - what to trade, when to enter, when to exit and why. At first glance, it seems like almost an almost insurmountable number of decisions - clearly more than enough to boggle the mind of even the most rational individual. So let's examine just one angle of that decision - what time frame should you be trading?
Before you consider trading anything in any time frame, examine the multi-time frame view. The chart in the upper left shows my "Active Trader" tab in TradeStation which shows the Weekly, Daily and 39 minute time frame for anything which I consider trading. Before entering a trade ask yourself these questions:
- What is the all-time high (ATH) and all-time low (ATL) price?
- If you don't know the ATH or ATL, switch to a larger timeframe. If you don't know the ATL or ATL or when it occurred you should not be trading.
- Is the current price closer to the all-time high or the all-time low price?
- Is the price closer to an area of support or demand?
- Is the price closer to an area of resistance or supply?
Note that every area on the chart where there the stock traded previously can be considered an area of support (where buyers will enter) or resistance (where sellers will enter). Consider your entry price versus and whether its closer to support or resistance.
The common view of the retail trader is to buy when prices are going up and sell when the prices are going down. Compare and contrast this with the common view of the institutional trader who will buy when prices come down to an area of value (stock is cheap) and sell when prices rise to the area of supply (stock is expensive or fairly valued). Point is that regardless of what time frame you trade, you need to understand the bigger picture so that you don't buy at resistance (supply) or sell at support (demand).
The only exception I would make to the above statement is when the stock moves out to an ATH or all-time high. This is a very special and rare price area where there is no prior supply or resistance and whose chart have the best prospects of continuation to even higher prices.
With that said, let's review the common chart time frames - from smaller to larger - along with my commentary on each.
|5-Minute||5-minute bars are hard to trade for all but the most nimble day traders.|
Breakouts of the high or low of the first 5-minute bar of the day is a common day trading technique - the 5-minute Opening Range Breakout.
Be careful of time trade since the first 5-minute bar is often thrown back or rejected.
|15-minute||15 and 30-minute time frame are used by many novice retail traders but have the advantage of signaling moves in advance of larger time frame bars|
|30-minute||30-minute bar is most useful for capturing the results of the 30-minute Opening Range Breakout which occurs at 10 AM EST.|
|39-minute||Carter favors the 39-minute bars since they split the 6.5 hour trading day into 10 39-minute bars|
|60-minute||60-minute bar - while widely captured in many popular charting packages - is not as useful as the 39 or 78 minute charts|
|78-minute||Carter also likes the 78-minute charts since they are exactly 2x the 39 minute bars and split the the trading day into to 5 78-minute bars|
|Daily||Daily is a good time frame for the swing trader since you should only be making decisions once per day - preferably in the last 30-minutes of the day when most of the daily bar has already been formed.|
|Weekly||Weekly is a good time frame for the most conservative once-a-week type traders. We recommend you trade this time frame in the last 30-minutes of the week when most of the weekly bar is already been formed.|
|Monthly and above||I don't think anyone trades in time frames above weekly. Possible exception is pension fund managers who choose asset allocations quarterly or annually.|
So are the key takeaways here?
- Decide what type of trader you are. Swing traders should trade 39, 78 minute or daily time frames. Day traders should trade 39 minute or below time frames.
- Once you pick a time frame stick with it! If you enter on the signal of a daily bar (for example) don't change your exit time frame to an analysis of the 60-minute bar! This is a common mistake and I made it myself this past week. But we all make mistakes and we must learn from them
- Retail suckers use the common time frames - 15-minute, 30-minute or 60-minute. Professional uses the 39-minute and 78-minute charts or tick charts. Retail traders wait until after hours to see changes of direction. Professional traders note when the happen between 10 and and 2 PM.
Bottom line is know your time-frames. Pick one that works for you and stick with it.
And have a great week ahead.
Posted by C. Smith at 6:46 PM