Anatomy of a Trade – SNAP

As I’ve been working on my trading game, one of my favorite tools in my belt is Fibonacci lines, particularly Fibonacci extensions and Fibonacci retracements.

One of the first thing I do with most any chart is to not just draw one set of these lines, but typically two of them.   Adding both an extension and a retracement of importance to current price action can open your eyes.

When people talk about a stock trading in a channel, I typically find that the channel is between a couple of Fibonacci lines, or fib lines, that serve as resistance on the top and support on the bottom.   And, where lines from two or more sets of fib lines are close, they seem to serve as even a stronger base of support or ceiling of resistance than others.

Looking at SNAP

When looking for opportunities, I often look at squeezes, especially if something is doing so across multiple timeframes.   $SNAP caught my attention from that, and from looking at the charts, I found something I liked.

First, the overall trend was upward.  Second, it was trading in a channel and building up energy.

As the first hourly chart shows, this has been trading in a channel for about a month.   It would dip under the channel and then move upward and go back and forth.  This type of action sets up good opportunities to take advantage of the ebbs and flows of stock action.

I put my limit order for an entry a little under the support line and was filled on Christmas Eve. The Monday after, the stock fell further, and I was using the 200-hr SMA as a signal to fire a stop loss if it fell under it, but it did not, so I stayed in the trade.

One thing for what I do is to set limit orders for my entrances and exits for my positions.   It helps to take emotion out of my decision making.  I’m not chasing something while trying to get in and I’m not letting FOMO impact my exit strategy.  And, it has paid off over time, as I’ve been getting better entrances and exits than I had previously.

For my exit order, I set my target right under the upper fib.   For option pricing, this isn’t an exact science.   But, it tends to work out well.  (In TD Ameritrade’s ThinkOrSwim platform, it will use a number of algorithms to put your limit order estimated price on your chart for you.)

In the second hourly chart, today’s price action shows a brief moment where the price reached up and touched that resistance line.   That is where my exit limit order executed, and I was able to sell at the high of the day as a result.

In this case, playing the two ends of the channel resulted in a 65% profit for a two week swing.

Yes, I’ve had some times where this strategy did not get me max profit, but at other times, it has gotten me an exit right around the high of the day.  

The object of trading is to give yourself an edge so that you can make money.   For me, how I use Fibonacci lines is my edge.