The trap move on the daily chart for Tesla was impossible to miss assuming you use volume price analysis as the foundation of your trading methodology and in this case, was one that was also confirmed with a volatility trigger, so two reasons to see this one clearly, so let’s take a look.
The trap in question occurred on the 3rd January as markets resumed after the holiday season, and this alone should have been a warning on its own. When markets are thinly traded in and around holidays, it is the perfect opportunity for the market makers to step in and create traps of all kinds, moving prices quickly on low volume to tempt traders into the market on the fear of missing out. This is the power of volatility. It triggers FOMO something the market makers use to great effect of which this move was another example. In this case, the gapped-up open was extreme moving over $100 per share, before adding a further $60 per share to the price and closing a shade under $1200 at $1199.78. However, from a volume price analysis perspective the question we should ask ourselves is this. Does the volume look sufficient to not only drive the price this much on the day but also the extent to which the gap was driven higher? And the short answer is no. Always remember Wyckoff’s third law of effort and result. The effort (volume) required here would be enormous to move the price this far and yet it is average, perhaps a little above average for Tesla but no more. So we can conclude it is a trap move – it has to be but no doubt drew in many traders and investors sensing a pickup in the longer-term bullish trend and perhaps dreaming of seeing the price climb like one of Elon’s rockets on to $1500 per share and beyond which it may well do in good time. Sadly, as soon as they are drawn in, the jaws of the trap snap shut as the selling develops on good volume taking the price below the point at which it began the ill-fated gap-up.
In addition, and as I mentioned above, the move was also confirmed with a volatility trigger on the Quantumtrading indicator and as such, we expect one of two things to follow. Either congestion or a reversal. In this case, it has been the latter with the price closing last week at $1026.96 per share and back at the VPOC denoted with the yellow dashed line. Moving forward we can expect to see further congestion, but for those trapped above, or stopped out, hopefully, a lesson learned. And finally, remember the old adage – gaps get filled!
By Anna Coulling
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