Trading in Tesla, Inc. (NASDAQ:TSLA) is relatively quiet Tuesday. This follows a period of extreme volatility. But while Elon Musk may not be very predictable, the action in Tesla stock has been.
This is why it's our Stock of the Day.
As you can see on the chart, Tesla recently hit resistance and reversed off the $359 level. This wasn't a coincidence. There tends to be resistance at price levels that had previously been resistance.
This happens because of buyer’s remorse.
Some people bought shares of Tesla at around $359 in February. Some of them decided they made a mistake when the price fell soon after. Many held onto their losing positions until May when the stock rallied back to that level.
When this happened, some of the remorseful buyers placed sell orders so they could get out of their positions at breakeven. There were so many of these orders that it created resistance at the level again.
The same thing occurred in late June. Remorseful buyers who placed sell orders around $359 created resistance at the level for the third time this year.
The stock has now found support around $285. This wasn't a coincidence either. There tends to be support at former support levels. As you can see, $285 was support in early June.
Support can form at levels that had previously been support due to seller remorse.
There were people who sold Tesla at support in early June who regretted doing so when the price rallied after. Some of them decided that, if possible, they would eventually buy back their shares at the same price for which they were sold.
So, when the stock dropped back to around $285, these remorseful sellers placed buy orders. The large concentration of these orders created support at the same price that had previously been support.
Seller remorse can also make support form at a price that had been resistance.
In March and April, $285 was resistance for Tesla. When this resistance was broken, some of the sellers who created the resistance regretted doing so. They vowed to buy their shares back if they could do so at the selling price.
When the stock dropped back to $285 in June, their buy orders caused support to form.
The chart of Tesla teaches some important lessons about trading. Resistance can form due to buyer’s remorse. Support can form because of the seller’s remorse. Knowing where these important levels are can help traders profit.
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