CMU: Always have a plan to take profits, TSLA edition

Cracked.Market University

As I wrote Monday, I like mixing the topic of these posts up a bit more but it is hard to ignore what is going on with TSLA. Not very often do we have the opportunity to witness one of these things blowing up in real-time and be able to dissect it as it happens.

In case you are living under a rock, TSLA had the biggest two-day run in the stock’s history earlier this week, at one point surging nearly 50% from Friday’s close. But as expected, that rate of gains was not sustainable. And not only did the rate slowdown but now it appears like the bubble burst. Wednesday the stock crashed, giving up the majority of those gains in a single session. Thursday’s rebound attempt was valiant but ultimately unsuccessful.

The reason I’m writing this post is because when trading, it is essential we always have a plan to take profits. If someone was fortunate enough to be in TSLA on the way up, great for you. But if you don’t act, it will all be for naught. If we are in this to make money, the only way we do that is by selling our biggest winners.

All too often people get caught up in the moment and start believing the hype. They know something other people don’t. That history doesn’t apply to this particular situation. While part of them deep down knows they should be taking profits, they are so afraid of missing out they cannot bring themselves to do what needs to be done.

Unfortunately for most of the people involved in TSLA’s staggering move this week, everyone who rode it all the way up is now riding it all the way down. As unbelievable as this sounds, at one point Thursday nearly everyone who bought TSLA shares in the best week of the stock’s entire history was sitting on fairly sizable losses. As my dad always liked to remind me after screwing up, easy come easy go.

And I wish I could say the worst was over. Unfortunately these things are even more spectacular on the way down. The market likes symmetry and the fall will be just as jawdropping as the rise. Expect this to go far beyond what anyone thinks possible. Just ask Bitcoin bulls how bad it got after that cryptocurrency fell from its parabolic highs. While I don’t expect the same magnitude of collapse here because Tesla is a real company with real value behind the stock, it will get shockingly ugly before this episode is over.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $TSLA