A Strategy for Trading Tesla

Ed Ponsi

EV manufacturer Tesla (TSLA) is scheduled to report earnings after Wednesday's close. Analysts expect Tesla to earn 56 cents per share on revenue of $8.2 billion. 

This stock often sees volatile swings after earnings, which could present investors with a buying opportunity. What would be an ideal price for traders to buy Tesla? We went to the charts to find out. 

tsla
Tesla (TSLA) chart via TradeStation

The first thing that jumps off of this chart is volume, shaded in yellow. On every trading session from September 25th through October 19th, Tesla has traded on below-average turnover. The lack of volume has been especially pronounced since October 5th. 

Low volume is a sign that traders are looking for a catalyst. This tells me that the potential for an outsized move in Tesla is even greater than normal. 

Where should investors look to buy Tesla? I'd initiate my purchase near the stock's 50-day moving average, in green, which is just above $400 (point A). I'd initiate with one-third of a normal position size. Notice how the stock has previously bounced from that moving average (arrows). 

I'd add the remaining two-thirds of the position as close to the bottom of the channel as possible (point B). This would be in the area of $325. 

Please note that I'm not predicting that Tesla will trade at these prices; instead, I'm letting you know how I will react if and when these prices occur. This is not a game of prediction, but one of reaction. 

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Ed Ponsi is the managing director of Barchetta Capital Management, and is the author of three books for publisher Wiley Finance. A dynamic public speaker, Ed has made appearances around the world, in such diverse locations as Singapore, Dubai, London, and New York. For more information about Ed and his work, click here