Looking for a good risk/reward trade? Check out Square (SQ). (January 05, 2018)


I want to look a Square ( NYSE: SQ ) today; the reason is, I like the way this is trading right now but I have a few bones to pick with it. But also, one of our members was asking about this, noting it was up on high volume, is this a good entry? My sense is, yes, I think it is a good entry because it is up on volume.

This is how I would frame this trade: On the downside, you can look down here, “Well, would I hold this stock all the way back down to the bottom of this channel?” No, I wouldn’t do that, that is 15 percent. Would I hold it down here, if it retraces Friday’s move where the low was 38.19, would I hold it down to here? Actually, probably. Because we have seen these stocks break out of a squeeze. Then the next day they pull back and then the following day they take off again; we have seen this time and time again. Also, the fundamentals on the company are good. This is a good solid company. The stock got ahead of itself.

I think this is one you can buy. Look at this as 7 or 8 percent on the downside and then if we are looking for a retest of the highs, and why not? I don’t know when it would happen but the way this stock is trading I kind of think it is going to happen, just not next week but probably before earnings. I look at this and draw this up to that, this has about a 20 percent of upside, based on my estimation, it is not a prediction, I am just to gauge risk and reward. I have a potential reward of about $20.00 on the upside and a potential risk of 8 percent, maybe to give it a little room 9 percent, that is a pretty good risk/reward. Risk 9 percent to make 20 percent, I will take those all day long.

That is how I would trade Square ( NYSE: SQ ). I think you could buy some now. I would start with maybe a quarter position and then if the stock starts moving in your favor then you ramp that up pretty fast. Don’t say, “Oh, I have a quarter of a position here. If it goes up here then I will buy another quarter.” Well, that is great. Now you have half of what your ideal position size would be and it is up 9 percent since you first started buying it. Do you see my point? You want to try to get big pretty quick but the stock just has to be showing you that it is working; I am looking for this level.

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