Taking a trade setup and making it your own

A Tuesday Trade Edition: One of the most important concepts in trading is to review your work, and learn from the good and the bad. It’s critical to identify what’s working — to do more of it. Each week, you’ll get a trade from my trading journal, in which I explain my whole thought process from start to finish. Trading is all about finding something that works, and applying it, over and over again. That’s how you find trading success. So study up on this “Tuesday Trade” and let’s get to work.

I’ve been trading hot stocks all year, with PTON, CHWY, and TSLA being some of my favorites. But as we approach earnings, I wanted to show a different perspective on some certain trades. My hope is that this can help you learn while a specific trade idea may not fit your trading style, that doesn’t mean you can’t benefit from it or turn it into a setup that does. 

So let me give you some insight as to how my friend, mentor, and Senior Managing Director of Simpler Trading, Henry Gambell trades.

Here’s my take on Henry’s Trade of the Week in TSLA…

First of all, I really like the pick — we love trading TSLA around here. Especially going into earnings. It’s been a pretty solid bet with the nice little chug higher going into the report that we’ve seen on the chart.

Historical Context:

Now with most earnings trades, it’s important to take a look back at the history. How’d it perform in previous quarters? For TSLA, you can see that last quarter we got a pretty substantial move. Whereas, the quarter before that wasn’t a huge move, but it still traded higher into earnings. Then the quarter before that one we also got a pretty nice directional move.

So aside from a decent performance in the last few quarters, is there another reason to look at TSLA?

Definitely. Overall this particular “space” has been in the news a lot lately. There’s even some competition with TSLA… although I wouldn’t really call it actual “competition.” But TSLA has been highlighted so much this year, and that type of news attention really does help the run into earnings trade historically.

I’m actually talking more about this in my webinar TOMORROW, you can join me by clicking this link or clicking on the image below (by the way, it’s free)…

As For The Actual Setup?

We have a squeeze on the daily chart, which is a great setup going into earnings. If you check the chart further, you’ll see that we’ve been stuck right around the 618 and 786 retracement levels, which is probably the one thing about this setup that I’m not absolutely loving. However, that’s not enough of a “con” to turn me away right now.

You might remember that I’d previously recommended some butterflies on TSLA targeting 415 that were expiring this week, but I don’t have a current trade on right now.

So let’s dig a little deeper into this…

I’m going to walk you through step-by-step how I’d go about placing this trade.

Taking A Position In TSLA:

To start I’m going to take a look at several multi time frames and pick out all the squeezes. There are squeezes on the 195 min and the 30 min. Now if you look at the 78 min chart, there isn’t a squeeze as we’re pulling right back to the mean. And like I said, we do have these lower time frame 15 min squeezes.

Now remember, I love Henry’s idea here all ‘n all. If you didn’t get to see the Trade of the Week, he was suggesting to buy the 500 calls during his analysis.

I especially liked how he mentioned that if you want to do this, you just have to buy it as if you “just lit that money on fire”. That’s a great way to think about it because if you’re already imagining the money is gone, you’re not going to sit there, stare at the chart, develop the fear of losing money, and as a result stop yourself out before it goes in your favor.

Looking Further…

I do like the idea of the delta 25 buys with a run into earnings. I also just like buying these at the money. The at the money ones are definitely going to be more expensive though. I wouldn’t just put these one and pretend it’s already money gone, plus naturally you do need to have a pretty wide stop for TSLA because of the general volatility involved with this ticker.

So once you’ve reached this point in the trade, you need to really think about your risk parameters. Do you want to spend $4200, $3300, $2800?

For me, I did actually buy the delta 50s since I really liked the pick as a whole.

I think it’s a solid shot, and I like that they’re in the money, and that they’ll probably move pretty decently with the overall market. Plus, they’re cheaper than the delta 70s. I’m targeting a $500 price point, and I’ll see what I can get out of it. As for the stop, I was pretty loose, right below the 21 EMA at 415 or so. 

Realistically I wouldn’t even have minded picking up some delta 40s or 30s. It really comes down to taking an idea and making it fit your trading style after all.

Now if this thought process and playing TSLA this way interested you, I’m hosting a special encore webinar TOMORROW, October 21st. In addition to walking you through the strategy behind this trade, I’ll also share the secret to my recent 600% account growth. Follow this link to join me.