Is this a strategy?

Discussion in 'Trading' started by countrydog2, Aug 14, 2008.

  1. Some times I will take a small long position on a stock and find that it did not work out, but will frequently not sell the stock because I think it will come back. Then what I often find is that the stock will trade down but then one day when the market rallies the stock will rally with the market but will not get back up to my original cost. Usually because the stock is not really that strong I expect (and the stock usually does) go back down.

    My idea is to sell short an equal number of shares on the day when the stock rallies in anticipation of a downturn. ) I think this is called a short against the box). I know the conventional wisdom might be that this is not a good strategy because by putting on the short I am locking in a loss if the stock continues to go up, but as I said I have seen many many times the stock will weaken and go back down with the fading rally.

    Any thoughts on this?