TSMC, the cup is formed. Shall we wait for the handle?
The OG chipmaker raking in record profits and beating expectations!
Upon the positive result announcement, the price gap up but closed with a slightly disappointing shooting star. Yet, Friday's (14 Jan 22) closing tells us that buyers are still willing to pay a higher price for TSM and the price manages to close at all-time high.
Price technically close above the previous resistance level, but it is not convincing enough. We shall have to prepare for a potential retracement AKA "the Handle" of the recently formed "Cup".
There are two possible ways to play this.
1) The Dollar Cost Average way.
You will use the previous support level, 145, as a focal point. That is to say, your stop loss and risk management will be based on that level. This is because, if the price manages to break below previous support despite good earnings, then there is very little reason to be holding on to this. From a supply/demand perspective, there are overwhelming supplies for the price to move up smoothly. However, as long as the price is above this support level, a higher low can be formed and the price will go higher. But since we do not know where the higher low will be, we will place our position in small batches as the price retrace lower, instead of one big position at the current price. Of course, you should still plan out the maximum limit of your intended position to work out your overall risk. The first batch of your positions could be at the current price to ensure you can still capture something if the price continues to head higher. This option requires holding power as you will most likely be buying to declining and/or sideways price action.
2) Wait for a higher low (the handle) to form first
As the previous support level is too far from the current price, it is better to wait for the higher low to form first. Once a higher low has been formed, you can take the trade with one big position with relatively safe assurance that the higher low will hold. As with option 1), there is no way to know where the higher low will be, thus you will have to depend on price action and candlestick reading to determine this. This option has a higher risk as if you predict the higher low wrongly, it could result in a losing trade. However, the reward is also higher as you will be able to get a precise entry without the need for averaging down.
Option one has more room for error at the cost of requiring better holding power. You might also not have the opportunity to enter the full position as intended as you are slowly spreading them out. This could result in lower profits.
Option two requires more precision and not much room for error. However, it rewards you with a much better entry position without needlessly spreading your seeds.
Upon the positive result announcement, the price gap up but closed with a slightly disappointing shooting star. Yet, Friday's (14 Jan 22) closing tells us that buyers are still willing to pay a higher price for TSM and the price manages to close at all-time high.
Price technically close above the previous resistance level, but it is not convincing enough. We shall have to prepare for a potential retracement AKA "the Handle" of the recently formed "Cup".
There are two possible ways to play this.
1) The Dollar Cost Average way.
You will use the previous support level, 145, as a focal point. That is to say, your stop loss and risk management will be based on that level. This is because, if the price manages to break below previous support despite good earnings, then there is very little reason to be holding on to this. From a supply/demand perspective, there are overwhelming supplies for the price to move up smoothly. However, as long as the price is above this support level, a higher low can be formed and the price will go higher. But since we do not know where the higher low will be, we will place our position in small batches as the price retrace lower, instead of one big position at the current price. Of course, you should still plan out the maximum limit of your intended position to work out your overall risk. The first batch of your positions could be at the current price to ensure you can still capture something if the price continues to head higher. This option requires holding power as you will most likely be buying to declining and/or sideways price action.
2) Wait for a higher low (the handle) to form first
As the previous support level is too far from the current price, it is better to wait for the higher low to form first. Once a higher low has been formed, you can take the trade with one big position with relatively safe assurance that the higher low will hold. As with option 1), there is no way to know where the higher low will be, thus you will have to depend on price action and candlestick reading to determine this. This option has a higher risk as if you predict the higher low wrongly, it could result in a losing trade. However, the reward is also higher as you will be able to get a precise entry without the need for averaging down.
Option one has more room for error at the cost of requiring better holding power. You might also not have the opportunity to enter the full position as intended as you are slowly spreading them out. This could result in lower profits.
Option two requires more precision and not much room for error. However, it rewards you with a much better entry position without needlessly spreading your seeds.