A Picture-Perfect Trade

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It’s always a great thing when a trade plays out in picture-perfect fashion.

That’s exactly what happened with this incredible opportunity Market Minute readers first saw on April 27.

At the time, I had identified a great trade setting up in Tesla (TSLA). This was well before the company would go on to announce record-breaking deliveries of new cars on July 2.

On April 27, TSLA was trading around $152 a share. The upside target I had identified called for a move of at least $113 higher, which would put TSLA around $268 a share.

That’s certainly a big move, as it would mean about a 75% increase in the company’s share price. Such big moves usually take time to develop, and this trade was no different. It took almost two months for TSLA to hit its target.

On June 20, TSLA traded through the $268 price level, reaching my upside target. That’s why it’s now time to book a great gain on this trade and wait to see what happens next.

Here’s an updated chart of TSLA below so you can see how this trade played out and why it’s wise to be taking a cautious stance right now.

There are two important features to this chart. First is the overbought reading in the Relative Strength Index (RSI) the stock registered as it hit its $268 target.

This overbought reading tells me that upside momentum in TSLA may have reached an extreme and could start selling off. You can see how this happened back in February when the RSI also reached overbought conditions.

The second important feature is how TSLA has now hit the upper boundary line of the parallel channel drawn on the chart. This trend line could be seen as resistance by the market and prices could stall against it, again leading to a possible sell-off.

While it’s certainly possible that TSLA has a lot more exciting upside to it, it’s not out of the question that we could see another considerable sell-off first.

The key is to wait now for the market to tip its hand. No stock just goes up forever without pulling back along the way, and TSLA isn’t an exception.

As the stock is reaching technically overbought conditions, it’s prudent to take our winnings and wait on the sidelines to see what happens next.

Good trading isn’t about squeezing every penny of profit you can from a trade. It’s about capturing the meat of a big move. The only way to do that is to be patient.

Trading shouldn’t be an adrenaline rush. If it is, I can virtually guarantee that trading will be the most expensive hobby you can ever have.

Happy trading,

Imre Gams

Did you establish a position in Tesla?

Let us know your thoughts – and any questions you have – at [email protected].