FB Update

Just to be clear, the FB trade idea (long) has always been a longer term trade idea like UNG or even MCP (to a lesser degree) and what they have in common is that they all look to be in basing formations or stage 1, it's the mark up stage 2 breakout that we want to catch, but being able to enter a base near the lows gives you the ability to ride out a lot of volatility as you entered at a better price, lower risk, etc.

The thing to remember is most of your volatility in a stock's life-cycle from stage 1 base, stage 2 mark up, stage 3 distribution and stage 4 decline is going to be found in the stage 1 base and the stage 3 top, that's where there's the least profit to be made, stage 2 is where the most profit is made, but you want to be in before stage 2 starts so you aren't chasing.

This essentially means you have to give these kinds of trades more room, wider stops and if need be, take on smaller position sizes so you can deal with the volatility and phase in to the trade, entering on pullbacks toward the bottom of the base and eventually in most cases on the final head fake break/shakeout.

Keeping all that in mind, here's the FB update.

 FB longer term 4 hour chart shows the first long entry back around May, it doesn't look very big now, but back then we did very well with that trade. Since we have a long term chart that is developing pretty well with a number of positive divergences relative to different areas.

 FB's recent positive divergences make this latest move look like a rounding bottom, I'll show you .

 Here's the basic idea and we've seen it before in FB, the accumulation is toward the bottom and that is probably why we are seeing the positive divergences pop up stronger now, when price moves too far away from this area, it gets knocked back down. When accumulation is complete, a stage 2 breakout will occur, in treating this as a basing trade, I want to phase in at the same areas smart money is doing so or even better areas because they need more time to put a position together, we can move in and out in minutes.

 Here's the last rounding bottom in the FB base, but note it is not perfectly rounding and it won't be because of market behavior and retail trader behavior, there will be false starts, shakeouts, etc. In red you can see some areas that moved away from the rounding on both false starts and shakeouts, this is why you need to treat this kind of trade differently, it's a longer term commitment, a position that is built and a wider stop/risk management (maybe even smaller position size initially).

 Here's the 5 min chart going more positive as the bottom of the rounding area is reached, again though, that volatility is really just noise in the bigger picture.

 FB 10 min.

An example of what I mentioned above on the 30 min chart, FB was too far away from the accumulation zone and was knocked back down, near the zone we see positive divergences, this is where I want to build and add to the position, but I think to be successful here, you need to treat those as a longer term trade and understand the volatility that comes with a base or a top and not get caught up in it as well as plan your risk management around it.

I don't have any problem with adding to FB here, but I would count on a wider stop that could violate that rounding bottom as that is the general shape, but volatility will do what it does as shown in the previous rounding bottom.

In the end, the bigger the base, the stronger the move up.