Wait for Facebook to Pull Back

 | Aug 22, 2014 | 9:00 AM EDT  | Comments
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I like to use either a weekly or a daily chart to identify my main trade setups, as the setups from those time frames will have some pretty healthy targets for swing trades.  As far as entering these setups however, I like to use a lower timeframe chart where we can really refine entries in the direction of the higher time frame setup. For example, in Facebook (FB), we have a much bigger picture target on the daily chart off the April lows that comes in at the $77.47 area.

We were able to project this target once we saw price hold above these lows by simply running the 1.272 extension of the March 2014 high to the April 2014 low. So way back in April, we knew to watch for that potential target off the $54.00 area. Now we are realistically close to this first major target in this stock. At current levels, we are certainly not going to be a buyer at the $74 area and risk all the way below $54. We are going to refine an entry via the 39-minute chart I will show you next. 

 

Facebook (FB) - 39-Min Chart

 

On the 39-minute chart above you can see a nice healthy pattern of higher highs and lows since the 8/1 low was made. If Facebook is going to head towards the next key upside targets on the daily chart sooner rather than later, ideally we see price hold above the prior swing low at the $73.00 area. So now what I want to do is identify key support that comes in above this prior swing low. Since I want to keep the edge in trading this stock, I will wait for pullbacks rather than buying new highs as the general public will tend to do.

If we have the patience to wait for a pullback, then the risk on the trade will be relatively low compared to those who have no patience. Keeping the edge can make a huge difference in your results. The support that I'm watching above the $73.00 low comes in at the $73.49-$74.46 area. Within this zone, I've also broken it up into three separate zones. Some traders prefer to look at the zones that way instead.

Bottom line, if price can hold above this general zone and we start to see buy triggers, I would be a buyer of Facebook, with my maximum risk defined below the $73.00 low.  The minimum upside target I'd like to shoot for comes in at the $77-$79 handles. If the $73.00 swing low is taken out instead, I will back off the buy side until further notice. 

 

Facebook (FB) - Daily Chart

 

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