If you have ever wondered why it is critical to wait for confirmation, the trade we looked at on Friday is a great example. “This will only work if we see a sharp move down today at the open.” We definitely did not see that sharp move and the put trade opportunity fizzled out.
But, better to have it never materialize than to backfire on us. If we had jumped the gun and took that put we’d have woken up this morning with a crater in our trading account.
Tesla is looking to gap up on great sales numbers this morning. In this case, we’d have looked for a move below the 10 day moving average (the green line in the chart) as confirmation that the signal we saw in the MACD at the bottom of the chart was valid. Another confirmation would have been a move below the previous low around 240.
Signals are always a great place to start but make sure to look for multiple ways to confirm the pattern is valid before jumping in. And don’t talk yourself out of waiting for confirmation.
Keep learning and trade wisely,
Market Wealth Daily