It may be possible to make money by swing trading Facebook stock. Three years ago we wrote about trading the Facebook IPO a year in advance of the company going public. We noted that
The fundamentals of Facebook depend upon its rapid growth. As the IPO date approaches next year technical analysis skills will be of paramount importance in reading market sentiment just before and after the IPO date. In trading the Facebook IPO traders may see the same sort of first day jump in stock price that happened with LinkedIn. Getting in early and riding the first burst of enthusiasm can be rewarding, provided that Facebook follows the model set by LinkedIn. If the stock does rise rapidly it could correct after the initial rise at which time short selling could be profitable.
It turns out that when Facebook went public in May of 2012 it was a Facebook Flop! The IPO was offered at $38.00. The stock opened promisingly at $42 a share and promptly fell into the $38 range. After buying by the investment bankers who ran the IPO, the stock rose back as high as $41.68 before eventually ending the trading day at $38.27. Facebook stock fell to the $18 a share range by August of 2012 and languished in the $20 a share range until mid-2013 before starting to go up. Although Facebook has not yet proven to be a good buy and hold investment, swing trading Facebook has proven to be profitable.
Ups and Downs Have Profit Potential
Since July of 2013 Facebook stock has gone up from $25 a share to $70 a share today. That is a nice run for anyone who bought before the run up. But with well timed swing trading Facebook could have generated more profits for the active trader. Facebook peaked at $54 a share in October 2013 and fell to $46 a share by November. It rose to nearly $70 a share by March of 2014 and then fell to $56 a share by April. After a month in this range the stock has gone up to $70 a share by July of 2014. A buy and hold strategy in the last year would have earned $45 for each $25 invested. Swing trading Facebook during this time would have earned $89 or twice as much on well timed trades.
So, where is this stock going and how can you make a profit swing trading Facebook stock? Facebook will grow its stock price in so far as it can maintain and grow its user base and monetize it. This is the issue we talked about a few years ago. With its cash Facebook is buying other useful companies that enhance its services and increase its revenue. While Facebook grows its business, investors follow quarterly and annual reports and drive stock prices up and down based on reported results. Swing trading Facebook can be profitable if a trader can anticipate when the stock will hit the tops and bottoms of its likely upward trending stock price. Trading stock options on Facebook can also be profitable as traders will be able to buy calls or puts and thus nail down a price that they will have to pay no matter how high or low Facebook stock might go.
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