Parking the $TSLA Trade – Why we have trade rules.

Trading $TSLA Price Action Using the Scientific Method Part III

For my “Stock Market Madness” Students

By the title, it is easy to conclude $TSLA remains “no trade” (at least to the “long” side). Despite there being no trade it is imperative to understand “why”.

Have a grade school student (9-18) interested in the stock market? Check out my Outschool class: Stock Market Madness! – Virtual Paper-Money Day/Swing Trading Group Experience

Observations

Our current trade conditions:

  • the daily chart had the 9 EMA above the 21 EMA describing short term upward price movement
  • the weekly had both the 9EMA above the 21 EMA, and the 50 SMA above the 200 SMA
  • the MACD was positive
  • a period of TTM “squeeze” had just ended
  • the day of observation also included an “inside bar” representing consolidation of the previous day’s price action
  • the daily bar is red (a condition we do not want); weekly, monthly and quarterly candles were all “green” per the STRAT full time frame continutity (FTFC) method (an important point is made later in this write up on this)

Just as with an experiment in the physical sciences, it is important to stick to your experimental plan. Once the results are analyzed, the new observations can be incorporated into the next trade within the limits of our rules.

Inside Bar Trade Rules

  • enter on a break above the high of the inside bar
  • should price drop below the entry exit immediately
  • if price increases, exit on the break of the previous bars’ low
  • if price never breaks the high of the inside bar, no trade

In our last attempt at trading $TSLA, an entry was made on the break of the previous day’s high (HOD – high of day). The next bar to form was a continuation bar, but the price over the 5-minute period fell below the entry. Per our rules, this dictates the trade must be “exit[ed] immediately”. So seemingly as quick as the trade started it was over. A subsequent break of the same price level also failed (but was not entered on). Price fell appreciably following this second attempt to break the previous day’s HOD. Our trade rules prevented a significant loss as such.

New Hypothesis/Experimental Plan

At this stage of the overall experiment, it is necessary to wait until the initial setup conditions of an inside bar to form and the process starts all over … which, uniquely enough, the next day also formed.

Adhering to our trading rules for the setup, the conditions for the trade are to enter a long trade with a break above the high of the current inside bar of $720.90, no trade otherwise. The previous option setup would be used as the first target is $724.83 (the previous HOD).

The Experiment and Results

if price never breaks the high of the inside bar, no trade

trade rule #4

Rules are for a reason. They prevent you from entering into a trade unprepared to react when price action does not progress in your desired direction as defined by the experimental conditions. The next day, in a similar fashion, did not result in a trade, and for the same reason. One rule has protected the trading account from loss. Price opened inside the previous inside bar, with a steady and consistent decline for all day, with an over a $12 loss from the open.

Thursday’s close of day chart with the formation of an inside bar.
Friday’s close of day chart, note the levels of the previous day’s inside bar.

Conclusion

Repeating the experimental process applying our criteria for a trade to the resultant candle of Friday dictate we wait for a trade setup of a new inside bar. For $TSLA our trade is concluded until these conditions present themselves again. Our rules of trade are paramount for capital preservation and our own personal development of trade discipline.

Something of note is that the full-time frame continuum (FTFC) candle color requirement has not been met for the previous three days – this one condition alone would have precluded considering $TSLA was ignored in these two previous thought experiment write-ups.

Now on to the next trade. For the moment $TSLA is not a “long” trade, but this is subject to change. Keep an eye out for upcoming news as that has a tendency to influence the stock price. There’s another inside bar somewhere.

Follow this trade in a simulated paper account … as it has similarities to hot coffee.

Disclaimer – because hot coffee is hot.

No Investment Advice Provided

As with all financial decisions – all monies are at risk of loss. So simply DO NOT DO THIS TRADE – THIS IS NOT INVESTMENT ADVICE. This information is for entertainment purposes only, so don’t make yourself the one everyone else is laughing at.

Any opinions, chats, messages, news, research, analyses, prices, or other information contained on this Website are provided as general market information for educational and entertainment purposes only and do not constitute investment advice. The Website should not be relied upon as a substitute for extensive independent market research before making your actual trading decisions. Opinions, market data, recommendations or any other content is subject to change at any time without notice. RalphPatterson.com, will not accept liability for any loss or damage, including without limitation any loss of profit, which may arise directly or indirectly from the use of or reliance on such information.

We do not recommend the use of technical analysis as a sole means of trading decisions. We do not recommend making hurried trading decisions. You should always understand that PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

Paying things forward

If you like this article and want to pay it forward consider joining Robinhood

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Image attribution: Robinhood

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Image attribution:
“Rocket Firefall” by jurvetson is licensed under CC BY 2.0
“@TeslaMotors HQ today” by jurvetson is licensed under CC BY 2.0

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