Did you adhere to your time stop on Facebook (FB)? (February 07, 2019)


One more look at Facebook ( NASDAQ: FB ) and this is why: It’s not really an I told you so, well, I guess it is, but I just want to have some continuity here one last time. I mentioned yesterday that the longer a stock stays, we were looking at this here, we’ve decided if the stock rallies back above this 171.68, this last high, then it is likely going higher.

I mentioned, though, that the longer it sits at this area the less likely it is that it is going to go higher. Because it takes ongoing demand to prop the stock up and then it is obvious that there is ongoing supply that is keeping the stock down. And so, because it takes ongoing demand to push a stock higher, stocks can just fall of their own weight but it really takes aggressive buying to push a stock higher.

So with each share that is bought at this price that is just one less share that is going to be bought aggressively. So the longer the time passes where the stock stays here the less likely it is that the stock is going to move higher.

Let’s say you are buying here, one day goes by, two days go by; it looks nice but it is still not doing what you thought it would do. So now you are up here, you’re sitting here saying, “You know what? I am going to give this stinking thing one more day.” If the stock doesn’t push up here then obviously the supply that is up here is enough to fill all the demand. Sooner or later that demand is going to go away. As long as it is still here the stock is going to move higher. But if the supply had not gone away, the stock would definitely be higher.

So we’ve got this standoff between supply pushing the stock down and demand pushing the stock up. And so far this supply is winning the day. Because on the side of supply is also a thing known as gravity. And so the longer this goes sideways the less likely this is to continue the breakout. Now, if it trades sideways long enough then it is now a continuation it’s a volatility squeeze, that’s a couple months from now.

So we are looking here, the next day you have got to be out of this trade by now. Literally saying, “You know what? My idea was that the stock was going to move higher. It really hasn’t so I am either going to sell it or I am going to have a really, really tight stop.” And then boom, here it is.

This is a trade now that is 5 days into it and you have to be looking at this saying, “You know what? This stock didn’t work out. I think that my potential profit on the upside is not that great. I have a logical stop that I can set right down here. I am definitely not going to give it any more room than that. Maybe I will give it 2 percent, maybe not even that much. Maybe I will just sell it outright. But if this stock even twitches below this level here I am just going to sell it and say, You know what? Nothing ventured, nothing gained.” But I didn’t really lose that much money.

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