Everybody loves to look at charts and go back and pick the perfect entry price. That’s what’s called hindsight trading. It does you very little good in the bigger picture to stare for perfect entries. This does little more than grant ego a bit of a boost.
However, going back to look at old patterns, old % changes, and other statistics that you can use going forward in other trades is a very different thing entirely.
Today, we’re going to do just that with FB and use it to look forward at SNAP.
FB had an ugly first few months. Price has a high of $45 and drops all the way to $17.55 while the lockup was going on. For those who don’t know, a lockup is what IPOs have to prevent employees, VCs, etc from unloading on day 1. By forcing them to wait it out a bit, the market can handle the earliest days of trading a little easier.
The yellow shaded area is where the lockup ends. Not sure on exact dates but it’s somewhere in this range.
From Peak High to Peak Low, FB retraced 61%.
After that, the weekly trendline breaks and price runs up to around $32 before stalling out and running back down to near $23.
Just think about that. Any trader who bought in the $18s saw their price almost double and return 100% in under 3 months, only to watch it pull all the way back to only being up around 20%.
How do you stomach that? By accepting that position trades are not in it for 100% but for 500%, 1,000%, or simply the long haul.
Trading is where you make outsized returns in a short period of time.
Investing or Core Trading is where you will hold a position for a long term outlook (typically anything over 12 months), knowing that the end justifies the means.
Imagine you sold out of FB at $25 because it made you 50% from your $18 investment. Now how do you feel today?
You’ve got to trade your plan, but if you’re looking at FB as a core, you’ve got to accept going in that a 100% is nice, but if it’s not your number, don’t adjust the stop to feel safe. You’ll take yourself out before it’s finally time to do so.
Holding from $20 to a recent high of $160 would be over an 800% return in 4 years. This is not the norm, but this is the power of core trading when done properly. In the mean time, there were some violent 30% drawdowns, but it all comes back to what’s your reason. If it’s a core setup, this really shouldn’t be completely out of the realm of possibilities.
Now that we've understood the Past, Let's Look to the Future
This is SNAP.
SNAP had a high of $29.44 and just recently had a fresh pivot low of $11.28. This pivot low matched up with the lockup expiration which happened in the yellow shaded box.
From Peak high to Peak low SNAP had a retrace of 61.68%.
Notice the weekly trendline is still in tact. The 20 simple moving average is not even close to bullish, and price has not given a higher low and high helping to confirm the low of $11.28 will hold.
That being said however, there are some STRIKING similarities between FB at the start and SNAP.
Going forward, if we can see the weekly trendline break to the upside, price to give higher lows and highs, and perhaps some other reasons that our plan requires to find an entry, then this has the makings of a strong core position.
What does that mean?
It means don’t bet the farm. Everything works and everything fails.
It means don’t risk more than 20% of your capital on this trade. Even core positions fail. The quickest way to broke is putting it all on black and praying it doesn’t come up red. No matter how good it looks, size yourself accordingly. You’ll sleep better this way.
It means you don’t trail the stop until much further down the road. Remember, this is a weekly chart. It took FB 4 years to reach 800% returns. This is not the time to be thinking stop to break even after 4 weeks in the trade.
In conclusion, SNAP can easily fail, but so can everything. If we simply look at the past to predict the future (technical analysis) then SNAP has a high probability starting to form that it’s FB 2.0.
It’s not there yet, but it should be on your watchlist.