MM28: Why Convert from MSL to SL

I have had a lot of questions in the community asking why, when Tesla was selling off and we got down to $335, would I sell out any of the long puts that are part of my modified synthetic longs at the very bottom when I may actually need that protection?

It is a great question. Not financial advice, but I want to make sure you start to move forward with your education and see how I do things and why I choose to do things.

Let me go through this with you real quickly. We have our Tesla 4 HR IADSS chart. We have a downward trending channel. We have buy divergence, and on our IADSS chart that is when we are making a lower low in price action but a higher high on the mean reversion indicator. 

When we hit the bottom, I analyzed it and said, wait a second. Where is my next level of support? I looked back and I knew it was down at $290. Where did I come up with that? Prior trading range. I anticipated this old trading range would contain price action if we broke lower.

So I said, we are at $335. The low of this move should be $290. Should I consider taking profit off my most recent and highest level modified synthetic longs (worst entries)?

Here is the key. When you are towards the bottom of the range and you are closing in on a support level, I thought that we might only have $40 left of risk. The upside was from $335 all the way back up to $500, another run at the all time high. So in my mind, roughly $40 of risk and $160 of upside potential. That is a 4 to 1 risk reward ratio.