today ’ s installment from the series, ‘ trade Lessons From A Hedge Fund Trader ’ will focus on Tesla Motors Inc ( NASDAQ : TSLA ) as per our reader ’ second request for inquiry, available here at BehindWallStreet.com .
This article is besides dedicated to Reginald, a erstwhile colleague from Mapleridge Capital. He told me he was brusque Tesla Motors Inc ( NASDAQ : TSLA ) so I ’ m going to share with him and all my readers on how to trade high beta momentum stocks .
Lesson #1 Don’t rely on the fundamentals when you’re trading a momentum stock
Tesla Motors Inc ( NASDAQ : TSLA ) has an EPS ( earning per plowshare ) of – $ 2.09 but sports a marketplace ceiling of $ 22 billion. Should a company have that character of evaluation when it will be lucky to sell 22,000 cars this year ?
This is a story of a electric potential hyper emergence company that sells a sexy intersection.
If you are going to trade Tesla Motors Inc ( NASDAQ : TSLA ) based on fundamentals then you will have your shirt handed to you .
When the valuations don ’ t make any sense then you must look towards the technical foul situation for guidance on the stock .
Trying to predict future sales of a hot new product is adjacent to impossible. Consumer ’ south desires are constantly changing and we are dealing with emotional boastfully ticket purchases. Big ticket purchases require a strong economy and with all the talks of a government closure, this adds even more uncertainty to the equality .
I have to admit, they make a damn fine looking cable car .
Lesson #2 Don’t trade countertrend to the momentum and never try to call a top or bottom
4 Tips For Momentum Stocks Like Tesla : trading Lessons From A Hedge Fund Trader
Tesla Motors Inc ( NASDAQ : TSLA ) gapped up to $ 40 in April 2013 and has been off to the races about reaching $ 200 precisely recently .
The average trader will look at this chart and think to themselves, ‘ there ’ s no room this stock can go any higher ’. Don ’ t fall for that trap unless you want to lose a fortune of money .
Calling the top on this stock, or any high fast-flying momentum sprout that is IN PLAY is not the manner to effectively trade a momentum stock .
Lesson #3 Trade in the direction of the Moving Average
It doesn ’ t in truth matter what time period you use for your go average because it will be going up for Tesla Motors Inc ( NASDAQ : TSLA ) .
Try a 50 period moving average and change the time period of the chart from casual to 2hrs, then try 1hr, then try 30mins. I want you to see how the search of the moving average changes .
Using a be active average is very simple so I encourage everyone to start using them. It takes out a draw of the guess work on trying to see the focus of the marketplace. As you already know, the moving average in truth lags the price action on the chart. I silent encourage you to use the move average because it ’ s a bare filter joyride that will allow you to by and large take trades in the direction of the move average .
4 Tips For Momentum Stocks Like Tesla : trade Lessons From A Hedge Fund Trader
Lesson #4 Learn how to read the volume on the stock
The bulk shows the animation force of the stock. The livestock price will drift in the direction of the path of least management. so when the momentum standard is bullish then that stock will drift upwards until it hits an opposing force. That impel will be represented by selling pressure and you will see that in surges in volume on the down days.
Those down days on heavy volume will have a typical ORB ( opening range break ) and ATR ( average truthful range ) expansion day but that is a history for another day .
Start looking at the volume patterns. You will notice that a solid broth will go UP on light volume and will have a actually hard UP day on heavy up volume. You will notice that the same broth requires a bunch of volume to push it down .
When the stock starts going down on light volume then that ’ s a hint that we are near a lead .
Why ? It all goes rear to the path of least resistor. When something is impregnable, it will go up until it runs into a sell pull solid enough to halt the advance .
When something is decrepit, it will go down until buyers step in to halt the advance .
Stop thinking about calling market tops and bottoms because it will cost you a lot of money and mental capital in the long run .
Change your mentality and think about trying to identify the path of least resistance .
The path of least electric resistance for Tesla Motors Inc ( NASDAQ : TSLA ) is however to the top and the proof can be found in October .
It took 7 days to go from $ 195 to $ 162 and only 4 days to get back to $ 188 .
Plus we bounced off the 50 day moving average on the lowest bulk days for October. Heavy volume selling to go down in October and light volume buying to go up means the stock is super strong.
dicker hunters stepped in and forced the stock back up
Use the 4 techniques from today ’ s article and start trade in the focus of the easily money .
now you have 4 bare tactics to use when trading a momentum stock and knowledgeable is half the conflict .
For data regarding stocks we do like, check out our flagship and ETF Newsletter .
This is a casual look at Tesla Motors Inc ( NASDAQ : TSLA ). and we are not making any specific buy or sell recommendation but merely voicing our opinion of the current situation. Each individual investor must conduct their own due diligence of both the ship’s company, the market sector arsenic well as their own fiscal situation and risk parameters.
in the first place published at BehindWallStreet.com
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