TSLA has been rangebound, stuck between $200 and $400 since 2017. But this week the stock staged a breakout and is challenging the upper end of the trading range for the first time in a year. Model 3 sales are robust and the company is venturing into pickups, far and away the largest vehicle category in the United State. Of course the stock pushed to the upper end of the trading range, duh! But for those of us that are not drunk on the Koolaid, the real question is whether recent gains are sustainable, or if the stock will be rejected by $400 for the umpteenth time.
No doubt both bulls and bears have compelling arguments supporting their case. But as traders, do we really need to choose sides? Not if we are nimble enough. The upper and lower end of trading ranges give us clear lines in the sand, allowing us to more clearly define our risk. Above this line we are bulls, underneath it, we are bears. It doesn’t get any simpler than that. We don’t care who wins this battle as long as there is a clear victor.
Prior highs near $390 are our trigger point. Above this level we are buyers. Below it, we are sellers. While this seems easy enough, nothing in the market is ever easy and that includes trading breakouts. Most likely, prices will flirt with the prior highs for a while, breaking above and below this level several times before the stock shows its true intention. But as nimble traders, this isn’t a problem for us. We can dart all-in and all-out with a single click. While this will inevitably lead to some whipsaws, that is a small price to pay for both downside protection and profit potential. The big guys only wish they could move as quickly as we do.
Smarter than jumping all-in and all-out, start with a smaller stake and only add more when the trade starts working. That way any losses from the inevitable whipsaws are minor and we will still be in a great position to jump aboard when the true move finally reveals itself.
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Tags: $TSLA S&P 500 $SPY $SPX
Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.