Aggressive Bottom Fishing in SnapChat SNAP

Aug 16, 2017: 10:59 AM CST

New and aggressive traders often enjoy searching for that elusive trend reversal trade, also known as “Bottom Fishing” or “Catching a Falling Knife.”

We’re seeing this type of activity pick up in Snap Inc (SNAP) as price – in a downtrend – made yet another new low.

Was $12.00 the bottom traders have been fishing for?  Let’s plan:

Snapchat SNAP

At Afraid to Trade, one of our core trading beliefs is “strong stocks tend to get stronger; weak stocks tend to get weaker.”

SNAP is a great example of our “weak stocks getting weaker” principle which has us trading retracements IN the direction of the prevailing trend and NOT against it.

However, the temptation is strong to fight or fade trends in motion.

Look closely at the bullish/buy (green) volume (highlighted) in August in SNAP.

Combined with a positive momentum divergence and a handful of reversal candles, some traders are stepping up to the plate to catch those falling knives.  I hope they’re wearing strong gloves!

Carefully watch the price action here into the falling 20 day EMA – let this along with the prior swing high (just shy of $14) be your Bull/Bear Boundary.

Look to trade bullishly on a breakout above these levels (a safer trade) or else continue playing the downtrend in motion should price break beneath $13.00 again and head back toward the low near $12.00 per share.

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Corey Rosenbloom, CMT

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Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).”

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