In this video from Steve Spencer, learn 5 important lessons from market leader Facebook. If you’re interested in applying these lessons to other in-play stocks then you won’t want to miss this video.
View Video Transcriptin today’s video we are going to look at
one of the market leaders facebook
and its recent trading activity which
can teach us five
separate trading lessons
[Music]
[Music]
hi i’m steven spencer i’m a partner at
smb capital a proprietary
trading firm in new york city where we
trade stocks
futures and options
and today we are going to take a look at
facebook
facebook is a market leader it is a
stock
that when it is in play is a very good
stock for short-term traders
and the reason why i decided to use
today’s video to use facebook in today’s
video
is when i looked at the price action
from the last few days
there was a bunch of very good
short-term trading lessons
that i think can be applied or i know
can be applied
um in many different scenarios so i kind
of want to walk you through these five
these five lessons number one
compression before expression
number two second day play
number three how to use an atr extension
number four how sometimes we can have a
week in a single trading day and finally
knowing and understanding what is the
news that is driving a stock
and how that can be important lesson
number one and this is one i’ve been
talking about for a long period of time
it’s known as compression
before expression and in the case of
facebook they reported earnings
um about a week ago and following the
earnings
the earnings were very good it gapped up
a huge amount
and then moved in a very small range for
three or four days in fact
the range was about four dollars
so we had day one immediately following
the earnings we moved around a bit
but then three days of very tight
consolidation
when i mean very tight consolidation the
range intraday range was about four
dollars
three days in a row um one atr in
in facebook is about eight dollars so
that’s that’s what we we call
compression and when we have compression
for two to four days
quite often after a catalyst we’ll get
expression either a break to the upside
or break to the downside and on the
fourth day boy did we have a break to
the upside now it wasn’t just a
technical break
and we’ll get to this a little bit later
in one of the other lessons there was
um there was some news driving it but
it’s very important to have set alerts
at both the top area of that tight
compression range and the bottom area in
this case
we had 254 we’ve been looking at it
since the day of earnings
as a spot that if it got above with some
strength to look for an upside move
and it turned out that that worked but
it also turned into a
into a multiple etr move as well and
that will become relevant one of the
next lessons so lesson number two
second day play so one of the primary
things we do on our desk
is we teach our traders how to trade
stocks in play that have a strong news
catalyst and then often
many of those names that have
significant moves on day one
will set up for what we call a classic
second day play there’s a few reasons
why we love second day plays number one
a trader of any skill level can trade
this it can be an experienced trader
might trade a second day play with a lot
of size and really pile on the risk
because of how good a how good of a
setup it is
but even a newer trader because of how
specific
the the setup is and how easy it is to
understand
a less experienced trader can can trade
that as well now
if you want to understand in a lot more
detail how to trade the second day play
go to tradingworkshop.com where we spend
two hours teaching
three trading setups and one of them is
the second day play click on the link
above
and check that out if you haven’t
already now just a couple of quick
pointers on the second day play
as long as we’re on it day one has a
good strong catalyst
it closes in the top or bottom 20
percent of its range
and then we’re going to use in the case
of something that closed at the top of
its range
afternoon support as well as the
afternoon resistance
as potentially one of two entry points
to make that play
and again if you want the the full run
down the 20 to 30 minute
how to trade that play just go to
tradingworkshop.com you’ll learn two
other very good setups on the desk one
of them in particular
the biggest traders on our desk we use
to really size up
um and make quite a bit of money uh
lesson number three for today
etr extension etr extension just means
and i reference the atr on lesson number
one i believe
which is etr is the average true range
for a stock
that means that a stock
closes has an etr of let’s say two
dollars
and closes on thursday at twenty dollars
um on friday for one atr
would be a close either at 22 if it went
up 182r or at 18
if it went down one atr and usually the
e2r typically when you’re
talking about atr’s for a stock it helps
intraday short-term traders
judge both profit targets and then also
where
a stock may fail in reverse because we
know statistically speaking in atr
we have a look back period of a month 22
trading days typically that’s what it is
on our platform i believe
we know what to expect in terms of of a
move for a stock now obviously if
there’s a fresh news catalyst
a stock can move a multiple of an atr
and i get more in depth into that i
think in the workshop
but as a rule of thumb if a stock on day
one had a catalyst like in the case of
facebook and we’ll i think that’s lesson
number four or five um
moves multiple atr’s and then on day two
is has moved up another atr
will look for that as a profit target
and also a spot for potentially to fail
and so for today after i moved up one
atr and it got to the 73
74 area i actually um
looked to short it now in that case it
only pulled back about
a dollar or two dollars before it went
up again and was up one and a half atr’s
but then i tried it again up one and a
half atr’s and eventually failed up one
and a half atr’s and came back
um completely and we’ll get into that i
think in lesson
number four so that’s lesson number
three atr extension works in both the
upside and the downside
especially on day two so lesson number
four is what i like to call
a week in a day and in this case
facebook
um in today’s trading action really
presented a week’s worth of setups in
one day
and part of that was because it had such
a strong catalyst the prior day
and there was strong follow through but
if you look at this particular chart
that i labeled
there are um six or seven different
action points
and i think i took action on about four
of these different points
um intraday so let’s walk through the
different action points
action point number one is relating to
the second day play
but it broke above the afternoon
resistance from day one
and that is a spot where on the second
day play one of the two spots we would
look to get long
action point number two actually served
as a profit target is also a potential
failure area that was up one atr in the
morning
in that case it got there pretty quickly
in the first hour or so
action point number three was one and a
half atr’s
where i put on a short action point
number four
is where we got confirmation we actually
had two strong reversal bars
where i added to a short position
to look for it to come back all the way
back down to
point number five in the low 270s
where we potentially would look for
support i played it on the long side at
action point number five
because it had pulled back at that point
a full atr from 278
we know the atria and facebook is around
seven or eight dollars or so
and so when it pulled all the way back
there
looked to play it on the long side and
played it back up to that top blue line
which was action point number six i was
actually off the desk um
so i just put up some offers into action
point number six
but once the stock is reversed and has
been up quite a bit two days in a row
and bounces back up um to an area and
starts to fail that would be a spot
where we would look to
reshore it again um as well and then
action point
number seven was when it took out
the pullback low meaning 270
um somebody who’s trading momentum to
the downside would look too short
on a momentum basis it’s almost the
opposite trade of action point number
one right on the open
where that was a momentum long to the
upside number seven it’s a little bit
riskier seven right because it’s already
sold off of full atr
but there’s going to be some more people
who are caught and trapped who bought
into that pull back into the low 270s
and when it takes out that that low
point number five
people are going to hit out and so
momentum people looking to short
might use that people stopping out as a
spot to get short as well
so that was a lot of different points
where you can make trades and then also
if you think about this if you’re
looking at this chart
and i’ve labeled this with all these
numbers think about if this was like a
daily
a daily chart swing traders be would be
using these points
if it’s closing above or below them for
swing trades and we can do the same
thing
on an intraday basis and that’s why
there was so much opportunity in the
stock today
and the final and the fifth lesson which
is actually the first lesson that
i thought of this morning um when this
stock came up in the morning meeting
today was why maybe i thought i might do
a video on it
was what is the news and so the way that
the morning meeting works is at the top
of the morning meeting i do the
i do the fresh in play news the stocks
with catalyst we go through our
proprietary process for selecting those
stocks and again
i spend 30 minutes teaching that in the
trading trading workshop at
tradingworkshop.com
um after i go through those stocks with
fresh news i then do what i call
second day and technical plays um
and i open that up if we have time if
people have a stock they want me to look
at
i’ll go through those in the second day
in technical plays and facebook was a
second day in technical play
and had the really strong multiple etr
move yesterday where it broke out it was
a technical but it also had a catalyst
and the person um as i was talking about
in the morning meeting
i said wow that was you know that was a
multiple atr move
you know what exactly was the news
driving that now we know right now one
of the big things of news
is the president has been issuing these
proclamations about
you know tick-tock we’re going to ban it
from bannon from the u.s
we’re not going to allow other stocks
trainees companies to trade on u.s
exchanges
this has been going back and forth now
for a number of weeks maybe even months
because we allow chinese companies to
trade on our markets
but there’s no reciprocity there and
so there’s been a lot of draw boning
going on and what happened yesterday
was facebook and you can see from the
headline
facebook and some of the other names
were starting to move higher because i
believe
uh trump said something like we’re gonna
we’re gonna ban tick-tock we’re gonna
ban
tencent um from being involved in our
markets
and why does that help facebook because
facebook a couple of weeks ago
said they were going to do something on
instagram similar to tick tock
and so even though that news wasn’t
fresh yesterday
and the person in the morning meeting
who was asking about the question said
oh there’s old news there’s no news
something i learned very early in my
career don’t
think that you know exactly what the
news was driving
the stock yesterday in facebook this
person had assumed
that it was because they had tic-toc
excuse me that on facebook had announced
instagram
was going to do a competing product with
tick tock that wasn’t what was driving
it what was driving it
was potentially any competition for that
product was going to be banned in the
united states
and facebook is a winner again just like
they won when they took over instagram
they might win with this competing
product because tick tock’s no longer
allowed to exist in the united states
and if we look at the chart here on the
move yesterday in facebook
it’s very clear if there was news
driving this it was not just a technical
breakout
the reason we knew that because between
11am and 12pm
that’s probably the lightest volume
period during the day
in terms of equities equities trading in
the us
and you can see massive volume that have
circled that area right there
and much higher than the open typically
the highest volume is right on the open
and right on the close and when you see
massive volume like that into a breakout
you know that’s being driven by news and
so the fifth lesson is
know what the news is understand what it
is and don’t be
don’t assume that you know what it is
without spending a little time
researching it
and then on the flip side now that we
know what drove it up
from 250 to 265 and then today to 278
let’s keep our eyes open next week if
the deal gets approved
and microsoft is allowed to buy
tick-tock and they can compete that’s
going to be
potentially a major negative catalyst
for facebook
and that’s why it’s important to
understand the news and be ready
to take action when the next news piece
comes in so a lot of different lessons
that are applicable you can apply these
across the board to other stocks that
become in play
there were five of them i hope you’re
able to take away a few of these for
your own trading
and please in the comments feel free if
you have questions related to any of
these five lessons
or you want to share how you use any of
these particular
lessons or how you traded facebook sure
we all learn from each other
