Analysis of Facebook FB

Trading Styles for This Stock Explained
Most traders are not taught the proper way to approach selecting a stock to trade. Often times the choice of what stock to trade is based on retail news, retail chatrooms, recommendations, and gurus comments.
The first step in analyzing any stock for a potential short-term trade is to establish if the price pattern is ideal for Intraday, Day, Swing and Momentum, or Position Trading which is a week to several weeks hold timeframe.
This is done by studying the chart using TC2000 charting software and Worden indicators. Using a combination of price and indicators for large lot versus small lots, and other Volume based indicators provides a complete analysis of all the data available. Just using price indicators is insufficient, and is only half of the data you need to consistently select the ideal stock to trade for your Trading Style.
Choosing the wrong stock to trade for your Trading Style is one of several reasons why traders lose money, have whipsaw trades, or minuscule profits.

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The first step is to determine which Market Participant Group created the current price pattern. There are Nine Market Participant Groups and each leaves a specific footprint on the chart. Of those 9 groups, 6 are large lot buyers and sellers who move significantly more liquidity through the market. As an example, the Balance of Power BOP Indicator has numerous different and distinct patterns which form that tell you who is trading at what price level, and if it is an accumulation mode, rotation, or distribution pattern. High Frequency Trades HFTs create huge spikes on BOP, often in the opposing direction of the Dark Pools giant funds buying huge share lots over extended periods of time.
The combination of Candlestick Patterns, Trend, Volume Bars, and BOP all on the same chart template provide an instant and easy way to determine who is trading the stock at the time. See chart example below.
chart example with candlestick patterns, trend, volume bars, and bop - technitrader

Facebook Inc. (FB: NASDAQ) in early November shows Professional Traders setting up to sell short, followed by HFTs gapping the stock down and running it down after a guidance warning is reported. Sure the report year over year was solid, but guidance mattered more. HFTs used the news to gap the stock down, while Smaller Funds and the Retail Traders rushed to sell after the gap down. The stock rebounded as it entered a prior Dark Pool Buy Zone™ where a giant fund picked up shares of stock at a much lower price.

When studying the chart to determine which Trading Style to use, you should study intraday charts if you are an Intraday Trader or an End Of Day EOD to First Of Day FOD Day Trader. It is NOT necessary or reliable to use intraday charts for Swing or Momentum Trading, and instead use daily chart views. Position Traders should also use daily chart views.

For Intraday or EOD/FOD the first requirement is liquidity, so check the Volume. It should be an average of 100,000 share per minute to ensure sufficient trading Volume for most intraday trades. For EOD/FOD the focus must also be the last few minutes of the trading day when the EOD order would be entered. There needs to be Professional Trader EOD footprints and sufficient Volume before choosing any stock. Does FB have that?

Swing and Momentum Trading require that a stock run at least 2 days in a row. It also requires a visible compression pattern before the stock runs up. Look at the chart and see if FB meets these basic requirements for Swing or Momentum Trading.

Position Trading is for Part-Time Traders who have only a few hours a week to study charts and trade stocks. FB actually lends itself most suitable for Position Trading. The goal for a position trade is to enter during a period of Quiet Accumulation as the stock moves sideways, before it runs up due to HFT activity. Identifying Dark Pool Buy Zones and Professional Trader compresions provides the best entries for Position Traders, and also aids in the best exits as well.

Summary
Many traders assume that if they learn some candlesticks, a couple of indicators, use a red/green light system, or a strategy that they have learned how to trade.
All they have learned is tidbits of trading. Without a complete comprehensive Trading Process, these tidbits will get a trader into a poor trade, at the wrong price, or just as it is about to encounter profit taking.
Being able to identify WHO is trading the stock at the current time helps you know whether or not this stock is ideal for your Trading Style, strategies for that style, and whether it is an ideal candidate for you to trade at this point in time.
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Trade Wisely,
Martha Stokes CMT
TechniTrader technical analysis using a TC2000 chart, courtesy of Worden Bros.

Chartered Market Technician
Instructor & Developer of TechniTrader Stock and Option Courses
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Disclaimer: All statements are the opinions of TechniTrader, its instructors and/or employees, and are not to be construed as anything more than an opinion. TechniTrader is not a broker or an investment advisor; it is strictly an educational service. There is risk in trading financial assets and derivatives. Due diligence is required for any investment. It should not be assumed that the methods or techniques presented cannot result in losses. Examples presented are for educational purposes only.