dozu, >Always short into squeeze. If you chase, you will get murdered. Welllll, shorting into squeezes can be quite tricky. While, of course, you'll get filled the stock could continue to run up alot more than your comfort level. Sure, it may ultimately prove to be a good short but are you willing to let it run 1-2 pts against you in the process of waiting for the reversal? I know I'm not. I keep very tight stops and am always reminded of Jim Cramer's line, "Discipline over conviction". As far as chasing I find most stocks that are dropping wiggle a bit and I can usually get in on a short (I'm talking Nas, don't know about listed), especially now with decimalization.
I don't understand why you need bullets (forgive my ignorance here) because through decimalization it is very easy to get an uptick. All that is needed is 1c.
I trade 10-min candles, and observe the average candle size before the breakdown, usually I only short the breakdowns from a low-volatility pocket, so I would be able to define a small risk. If, e.g., I am willing to risk $0.5 on this trade, I find my stop point first, of course at the moment the stock is dropping and might be $1 below the stop price, but I still put my offer %0.5 below the stop, and let the stock squeeze back to my price and get the fill. If no fill, then I kiss the trade goodbye and look for the next set up. It's very natural for the stocks to squeeze back to the breakdown line.. if the major support is 100, and while there are people shorting at 99.9, 99.8, 99.7... these traders are in the money, and most of them have been brain-washed 'never let a winner turn into a loser', so once a squeeze starts, all these people cover and majority of the time it bounce back to around 100, that's the game MMs love to play, and if you have level 2 feed, you will see tons of fake bids and only 1 or 2 MM on the ask, this scare the hell out of the shorts, and is the best time to offer your shares out and get the fill.
Babak, >I don't understand why you need bullets I've been told by a number of people who only trade listed that sometimes (often?) the specialist will simply refuse to uptick, thereby keeping those who want to do a natural short out of the game. In that case only a bullet would do the trick. As there are a number of people on this board who mainly trade listed I'd be interested in their take on this as I only trade Nas.
I don't trade Nasdaq so I can not comment on OTC, but here is my experience with listed. I am near the point where I will say goodbye to natural shorting, in other word if I don't feel there is a need to put up a bullet, I probably won't take the short. Keep in mind I don't do much size either. For higher end traders at my firm who does anything more than 2000 shares, they almost never go natural, always bulleting. As we all know one of the biggest asset in NYSE trading is the tape, and one of the most basic rule is go long / add to position when you see a BID. On the short side, when you see a nice ASK, you will never get your short filled. The only way in is a bullet. I don't know if you guys pyramid into positions, but I find it incredibly profitable to buy more on the long side when I see a BID stepping up, without a bullet, you can't do that on the short side. Then there is the "is it a squeeze or is it a reversal"? When you natural short someone has to buy it from you, when someone is buying it from you the stock is upticking, when the stock is upticking the trend is against you at least the very very short term. The optimum time to short into a squeeze is when the rally is fading away, getting in too early, you risk a stop out, wait until you see actual weakness is great but you won't get filled, so in order to get filled you anticipate a short term top, which is fine, but result in lower percentage shots versus someone with a bullet who is actually waiting to see weakness before selling. Also, in thin stocks, a size bullet can be incredibly damaging to the BID's, as one or two well placed 100 share direct plus sell orders can paint the chart and forces subsequent sell-off's. I would say some traders even use their bullet to create an illusion of "ASK stepping down" to scare people into selling. Last but not least, if you make most of your money off the open, you will appreciate the power of bullets. Many many sell-off day's (bad news), a stock opens near unchanged, a big ASK shows up, you put your natural short in and beg him for a fill, he is not going to fill you, you watch the stock tank a point without an uptick even though you knew for a fact that it was going down. Sounds familiar? Bullets off the open is a HUGE advantage. Be cause not everyone got bullets, I think I have got noticably better fills when I use a market order on something with 10 x 500 than 500 x 10. Less competition because unlike the 500 x 10 where everyone and their mother go market long, in the case of 10 x 500 I usually get a friendly fill.
Hitman, and others, thank you for forgiving my ignorance as I requested! I see now that bullets are rather vital now. So why don't edat brokers like terranova or IB offer them? To my understanding, only firms offer bullets (Hold Bros, etc) why?
Hitman, This is a little bit off the topic of this thread but you mentioned something interesting to me: >one of the most basic rule is go long / add to position >when you see a BID. As I'm trying to understand listed stocks better, can you really "trust" a large inside bid by a specialist? Reason I ask is because on the Nas there's no transparency, God Bless Level II (he says sarcastically), so I don't trust large size on the inside price. Often I find it's just a headfake, to panic people in one direction or another, and after (maybe) getting hit for a few hundred shares it will magically disappear. Is it really different with specialists in that regard?