Diamond top formation in Tesla. Go Short

After the failed breakout of the rising wedge a week or so ago Tesla moved up again but failed to make new highs. Now we have formed a diamond formation which sometimes although rarely comes at the top of a long uptrend. This may be what we are seeing here.

Here is Investopedia's take on it

www.investopedia.com...x/05/diamondbear.asp

This certainly looks like one to me here, perhaps we will see an attempt to break the formation to the downside the next few days. I had expected buyers to step in the last 24 hrs with the bitcoin asset that Tesla now own having gone up massively in value, however the market (in Tesla not Bitcoin) seems unimpressed.

Here on the extended hours chart we can see Tesla made an attempted a break of what could be perceived as a flag but that failed, now perhaps it's time to test the bearish reversal pattern of the diamond formation and the strength of sellers.

Note of caution
Most breakouts fail. In order for sellers to be successful we need to see several things:

1) The bigger picture confirming the possible break
1) Lower timeframe moving averages confirming the direction of the break
2) A build up of break pressure like a coiled up spring
3) Volume coming into the break
4) A clear resistance level (here shown as red line) near the break point which would act as strong resistance against a fake break

What do you think? If you agree and think we all the above, then we can attempt to go short and we could look to target the green support line in the top graph. We should enter before the break not after to minimise risk and so as to be able to bring our trade to break even straight away. We should then look to take 50% of our profits after the break as most breakouts fail due to overbought or oversold conditions. All being well we can hold the rest of our position till we hit our target point. We could even consider adding to shorts on pullbacks as we go down.

Follow the trade above and i'll update it as and when.

Trade active:

24 hrs later and this has been working out exactly as planned, we got a great short entry yesterday above resistance and have now seen an incoming death cross on the hourly moving averages with the 100 moving under the 200 as well.

We now have price now stalling at the next obvious point below to make an even more perfect diamond, (congrats to @2use for nailing the prediction for the resistance take profit point today).

I'm sure we will try and go on and break this new diamond at some point. All the steps above we can follow again. We may trade up to the upper red resistance line from here (add to shorts there) or we may just break down.

To make the second incoming break more powerful, I would like to see the hourly 200 period moving move below the upper red resistance line to give more power to a further break. We really need to see those hourly moving averages curl down fast, to the second break point or we may just get a fakeout break buying opportunity for bulls looking at a potential new bull flag or something around 780 if that holds.

Trade closed manually:

Here we can see a fake break on Tesla which has caused me to close my short. Why did this happen? Well as discussed most breakouts fail, in this case the hourly moving averages hadn't descended enough to below the breakout resistance and so bargain hunters have stepped in. I have seen this thousands of times over the years and its why us pro's always take profits after breakouts and enter before breakouts. In trading we often see big potential moves like this, the key thing though is to take profits after breakouts. Thats not to say that Tesla still might dump but in this case the signals are no longer valid. Let's see what happens and look for more trades as they come.

Trade active:

Back in this short again with the surprise close below 800. Seems a lot of bear power in this still.

Trade closed: target reached:

Currently out of this trade with a nice swing down to 620 for profit taking last week, we could still go a lot lower though so will be re-assessing it as time goes on.