Why did we take a rip in Tesla?

BellaBella Daily Update

Three days ago, I wrote that we were hawking a Tesla Bounce Trade. See Four keys for a Tesla Bounce Trade.

Friday we took that trade.  And we took a rip.  See Taking a Rip in Tesla.

Perhaps after review, we will conclude that the Tesla Bounce Trade was worth taking.  But there is an important element of that review, I would like to discuss on this Christmas Day.

This element, this best practice, is imperative to getting the most out of a bounce trade.  This is especially true to make the most of the experience taking a big trade, like the Tesla Bounce Trade.

This best practice is to review…Why did we take a rip in Tesla?

What about the Tesla Bounce Trade made it less likely to work?  What did we miss?

Again, we may walk away concluding we would have done exactly the same.  But you cannot improve without an inquiry into why you might have been wrong.  What you might have missed.  Why the trade didn’t work out.

I do not mean for this post to be an exhaustive review of why the Tesla Bounce trade failed.  I mean for this to be illustrative of the best practice to incorporate in your post-trade review.  This is me role-modeling the discovery for you.  This is me starting a conversation on why perhaps this trade did not work.  Feel free to disagree with any of the reasons below.  Feel free to discover important reasons I did not list.  This is a thought experiment we are doing…together.  The reward is the improvement that comes from participating seriously in this review.

Some potential reasons… Why the Tesla Bounce Trade failed?

  1. We are in a bear market.  Bounce trades, all long trades, are less likely to work in a bear market.
  2. It was just Day 2 after the negative news catalyst: Tesla (TSLA) will offer $7,500 discounts on Model 3 and Model Y cars this month. (ReutersPerhaps big money players are not done exiting after this negative news catalyst.  Maybe we were too early.
  3. Negative sentiment about about owning TSLA and its brand after Elon’s erratic, immature, unprofessional $TWTR behavior is still spreading.  Do professional money managers want to own a stock run by a CEO exhibiting such behavior?
  4. Covid is spreading aggressively and unexpectedly in China.  Do we even know how bad it is?  Do we want to risk off until we have more clarity?
  5. Is the market just too weak after the last FED meeting?  Since the last FED announcement the market has traded considerably lower, unhappy with the perceived hawkish tone.
  6. Do we need a better signal of capitulation before TSLA can bounce?
  7. Do we need to see more Tape Reading strength with a reversal to the upside for the Bounce Trade to work?
  8. Elon still has not hired a new TWTR CEO.  Is that necessary for Tesla to bounce?
  9. Can Tesla bounce on a Friday before Christmas?  Do we need more market participant for the real bounce?
  10. Are there too many people watching for Tesla to bounce?  Is this trade too overcrowded to work easily?
  11. Should we be scalping this instead of playing for the home run bounce trade?

(How to Use Tape Reading to Make Quick Profitable Trades (for Scalping)

Okay I am gonna stop here.  You get the point.  Why did we take a rip in $TSLA?

If you adopt this best practice, then you will get even more out of the Tesla Bounce Trade.  Even better would be to build your list of why the trade failed, share it with your trading pod or trading team, and discuss with each other.  That is even more reps for you to improve with this huge trading opportunity.

Okay I am gonna go and take a long walk on the Jersey Shore and give this some more thought.  I am curious, for those who took this Tesla Bounce Trade….why did you take a rip?  Please consider sharing your thoughts under my tweet @MikeBellafiore to this post.

Merry Christmas!


Important disclosures

Mike Bellafiore is the Co-Founder of SMB Capital, a proprietary trading desk, and SMB Training, which provides trading education in stocks, options, and futures. Bella is the author of One Good Trade and The PlayBook. He welcomes your trading questions at [email protected].