After I bought $3k worth of TSLA puts in the last ten minutes of the market today, I chickened out and sold them. My analysis was that the stock formed a double top pattern, albeit a vague one, so I planned to buy puts when it would reach around 698. I made an aggressive move and bought at 700 and then minutes later I made an emotional move and sold them, because it was 3:52 pm already and didn’t look like it was going to pass 698. Right after I sold, it dipped to 698 and then reversed. Was there any reliable way through analysis that I could have used to tell when the trend was still in progress and to predict its reversal. I tried using RSI but didn’t now how to adjust RSI parameter and the time frame for it to be useful. Any ideas for relatively short strong trends like these that can be used especially at open and at close.
Pattern analysis such as double tops is wishful thinking, especially 'vague ones'. Support and resistance is arbitrary. Anything that is oversold can become far more oversold and vice versa.
As for the RSI, it is an improvement on the Rate of Change and Stochastics indicators because it removes the 'take away' effect of early data. Because it is a ratio, it eliminates the problem of needing large amounts of historical data. But because a ratio is used in its calculation, it is more volatile and erratic. Shorter RSI periods result in more timely signals along with a larger number of whipsaws. Longer RSI periods result in fewer signals which are less timely and less profitable because of delayed entry and exit.
Here's the catch with these technical indicators. They can provide information like support and resistance, trend, and current momentum but they are just reflection of past price and they predict absolutely nothing going forward. It's like looking in the rear view mirror to see where you have been. Any trade taken based on them is based on the hope that the trend continues.
If you want to verify any of this, back test a large number of sets of data. It might cure you of using them.
Many Market Makers (who most likely sold you the options) make zero assumptions about which way the stock will go. The moment they sell you the options, they immediately hedge their position by buying or selling stock to cover the delta of the position.
The people advising you to use technical indicators are often people who stand to gain regardless of whether they help you make a profit or not. Your broker will make commissions and interest on margin and receive payment for order flow regardless of whether you make money or not. The reason brokers receive a lot of money for retail order flow, is that retail customers generally do not know what they are doing, and so are very profitable for the market maker that can execute them first (so they pay the broker to send the order to them first).
I may be extreme in my view to say that looking at technical indicators to decide if you should make a trade or not is like reading tea leaves to decide if you should do something. While there might be some sound economic analysis behind some of them, they will not always work, and certainly should not be used if you cannot afford to lose your money.