“Stocks which are weak tend to get weaker.” Twitter (TWTR) continues to demonstrate the power of this simple statement for traders.
It’s extremely tempting to find a weak stock and try to trade a reversal, but it’s more profitable to find a trend and ride it for all it is worth.
Let’s chart the Weekly and Daily path of Twitter (TWTR) and note what opportunities may exist for us now.
Here’s the bigger picture Weekly Chart:
The weekly chart serves as a reminder not just that this popular stock (note the volume) is volatile, but that it remains in a primary downtrend.
After a successful few months after the initial IPO, shares peaked above $65.00 and have never seen this level since.
Two multi-month deceptive counter-trend bullish rallies lured bulls to their doom when price broke rising trendlines to trigger new sell-short (breakdown) signals.
The last straw for the (then) rangebound stock was the breakdown in July 2015 under the $35.00 per share pivot which set the stage for the current relentless selling pressure we see today.
One more small retracement to the falling 20 week EMA (green into $30) was the most recent larger-picture sell-short signal ahead of the current swing to today’s fresh new price lows.
With this larger downtrend in mind, focus on the Daily Chart for a moment:
Our strategies call for identifying a trend on the larger timeframe and then trading that trend with pullbacks or retracement opportunities on the lower frame (such as the Daily Chart).
Note the Bear Flags and trendline breakdowns I’ve highlighted throughout 2015.
You’ll find superior Reward/Risk strategies when short-selling on a retracement – either to the falling 20 or 50 EMA or on a pure price breakdown under a rising ‘flag’ trendline.
Learn in-depth retracement tactics and strategies – along with how to identify trends and trend reversals – via our “Trend Trader’s Perfect Pullback” special lesson bundle.
It’s too late from a Reward/Risk standpoint to short Twitter aggressively here at new lows under $18.00 so stand aside until a new retracement occurs or if you just can’t resist short-selling this stock, you may do so carefully on the intraday frame with similar retracements that may develop.
Follow along with members of the Afraid to Trade Premium Membership for real-time updates and additional trade planning.
Corey Rosenbloom, CMT
Afraid to Trade.com
Follow Corey on Twitter: http://twitter.com/afraidtotrade