Tesla Inc. (NASDAQ: TSLA) is a well-known American automotive and energy company that specializes in electric car manufacturing and, through its SolarCity subsidiary, solar panel manufacturing.
Understanding TSLA’s Trend
The daily chart of TSLA shows that it has been on a steady uptrend during the past few months. This is indicated by the prices forming higher highs and higher lows in the chart. This trendline is marked as blue color dotted line in the chart below.
Main Trendline
As the current trend for TSLA is upwards, it is ideal to look for long positions when trading this stock.
TSLA Long Positions – Bullish Trading Strategy
An advanced strategy for entering long positions in Tesla is by using the combination of trendline support, RSI indicator, and the ADX line. The following are the various steps of the trading strategy.
Step #1: Identify a good entry point using trend line: Some probable entry points are whenever the stock touches the uptrend line, or cross just below it (however, not below the previous higher low).
It may be noted that within the main uptrend, there could be many smaller uptrends.
Step #2: Check the value of RSI (Relative Strength Index): Whenever the price is near the trendline, if the value of RSI is nearing its support level of 50 or is below 30 (oversold), a trend reversal to the upside or a corrective price reversal to upward direction is expected to happen. This is basically a buy signal.
Step #3: Double confirm the entry level using ADX indicator: An ADX indicator is highly helpful for deciphering how strong a trend is, irrespective of the direction of the trend. If the ADX indicator is above 20, it indicates an upcoming strong reversal.
Therefore, if Tesla’s price is near the trend line, the RSI is near 50 (or oversold), and the ADX indicator is above 20, it is best to enter long positions at that level.
Exit Point: Once the ADX line moves below 10, it is a sign that the price has topped out. There would be only sideways or downwards move for some time until the ADX line crosses above 20. Hence, it is best to exit the long positions whenever the ADX line moves below 10.
Bullish Strategy In Action
The figure below shows how this strategy helped with identifying good entry positions for Tesla in the past. Here, the main uptrend line is marked as a blue color line, while the smaller uptrend line is marked as a pink color line. The entry levels are marked as orange and pink color arrows.
Bullish Strategy
Note that the blue color dotted line and the pink color dotted line represents the extrapolated uptrend line.
When is the Next Entry Level? You can enter long positions again when the stock takes support at the smaller trendline (pink color) or main trendline (blue color) while the RSI is near 50 (or oversold), and the ADX is above 20.
TSLA Short Positions –Trading Strategy
As mentioned earlier, the stock is currently in an uptrend. Therefore, it is always recommended to go with the trend, identify good entry levels, and take long positions.
However, if you want to enter into short positions in Tesla, the ideal entry level for that is when the stock reaches the upper rail of the trend channel (marked as purple color dotted lines) while the RSI is near overbought levels (above 70).
Then, you have to look for additional bearish indications that confirm the possibility of a price correction.
Bearish Strategy In Action
The figure below shows how this strategy helped with identifying short positions for Tesla in the past. The trend channel is marked as purple color dotted lines while the entry levels are marked as red color arrows.
Bearish Strategy
The additional bearish indications that were used as confirmation included long-tailed bearish candles.
When is the Next Entry Level? You can enter short positions again if the stock reaches the upper rail of the trend channel again, while the RSI is near 70 (overbought levels); or if it breaks down from the uptrend channel.
— Tara Young
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