Mad, I agree that especially in current market conditions shorts seem a safer bet. Stocks almost always drop at least twice as fast as they rally, because fear is stronger than greed. However, I've noticed a lot of your short signals lately are on stocks that are hitting new highs against the market's down trend for the day. This is trickier and usually any pullback is very small, and as you've noticed, sometimes the rally just builds and builds, a combination of people piling into a strong stock in a weak market, followed by all the shorts in a panic to cover what they thought was surely a great short entry. What I look for foremost in going long is a failure to make a new low. My second strong indicator is a stochastic pivot off a seriously oversold condition. My third strong indicator is when a falling price approaches a near-term (or longer term) support level close to a round number (on the dollar). An example of failure to make a new low would be MA behavior yesterday and I've attached a chart analysis. The stock gapped down hugely after Thursday's breakdown of the bailout plan. In fact, it opened not too far from 9/18's panic selloff support level of $182. On opening Friday, there was a further selloff to test that support level. Support was broken and very close to $180 (a nice round number that often serves as intraday support and resistance), there was a quick bounce. Although there were great trading opportunities after the opening bell, I generally don't trade the first 30 minutes of the day, because it's usually a mess. I like time to see a trend set up, to see some candle patterns, to get a feel for the volume and the trend of the market, etc. So MA bounces off 180, breaks the opening high of 184.50, totally hits its head against a nice round 186, pulls back, re-tests 186 and fails to make a new high (by just a penny). There's a strong short signal right there. For the next two and a half hours the stock ranges between the day's support and resistance, but by 12:15 it is clearly making lower highs and lower lows and s nothing but news of a bailout agreement could possibly drive a true rally. Once the LOD breaks down at 12:45, it drifts down further on very low volume, testing each round number as support along the way - first 180, then close to 179, and finally comes close to 178 before buyers and sellers seem to find equilibrium. Now, if I'm looking for a strong long entry at this point, I need to see a failure to make a new low, because if a stock hits a low of the day, bounces, pulls back and fails to make a new low, chances are VERY good it will continue the trend up. When MA bounces off 178.28, and pulls back to 179 instead of to 178, that's a great long signal. You could go long just above 179 and set your stop at 178 (because that would be a breakdown of the LOD). Sure enough, from that point MA makes higher lows and higher highs, eventually ending very close to the day's resistance at 186. If you look at any chart you will see this pattern. And it's just the opposite for shorts: Look for a strong run up, then a pull back, followed by a failure to make a new high. That means the buying pressure has weakened enough that the sellers will gain the edge of their lower bids getting filled. Seriously, study any chart and watch the uptrend on failure to make a lower low, and the downtrend on failure to make a higher high. Now one thing that negates all of this is when news hits a stock, a sector, or the market, as we saw on 9/18 when a possible bailout plan was hinted at and the whole world decided to go long, triggering what was probably the second strongest short squeeze of the year after 1/22 :eek:
- $4110 Bought MOS on oversold indicator (but not my preferred failure to make a new low, which was a mistake). It ranged around a bit a few cents around my price, then tanked hard and took me out with huge slippage. I set what I thought was an impossible to hit stop on my MA call position in case the vote turned out badly and it did and my stop got hit (it went significantly lower too). Then MA rallied harder than almost anything else, meaning without a stop I would've had a much smaller loss, but who knows that in advance? Wanted to short ESRX only to find it's not allowed (they're inexplicably on the no-short list). Missed a lot of good opportunities today, but it was kind of crazy to say the least. Well, tomorrow is a new green day
- $158 Did not trade yesterday. Went long DVA today when it bounced off a major low. Should have waited for the stochastic crossover to get best price, but still not bad @ 54.24. Set stop @ 53.94, which allegedly got hit even though the LOD was 53.95. And of course it rallied after that. Etrade placing an inquiry to make sure there was actually a bid at that price to have triggered my stop. Vacation for a few days, best of trading to all!
+ $89 (Made $136 last Thursday but didn't post here.) CELG hitting lows, so I put on the trade @ 53.32 upon failure to make a new low as well as a break up through the 8-period SMA on the 3-min chart. Closed the position @ 53.63 for $155 gain when the stochastic indicated an overbought condition. I left over $200 on the table by not waiting for the stochastic to pivot down. Also, once I exited the trade, I no longer followed this chart, unfortunately, missing a really excellent re-entry when it pulled back to the 53.60 price range and then rallied the whole rest of the day. I am so ADD; I really need to be patient and stick with one or two charts. THOR hitting lows and I bought at 28.29 based on the oversold condition and buyers coming in. Then I looked at the daily chart and did not like what I saw. It appeared the stock could fall significantly further, so I exited at 28.21 for a $40 loss. I missed two perfect shorts on ENER by asking too high a price for each entry. Next time, Iâm just going in at market. Iâm so tired of missing great trades by being way too picky. Watched MA all day and simply didnât trade it for some silly reason, even though it gave several great signals that all wouldâve worked out fine. Then at the very end of the day when it hit fresh lows, I offered 10.80 for Nov $155 calls (last trade was 10.70) and bam, it rallied hard in seconds and I didnât want to chase a position Iâd be holding overnight.
+ $354 Wanted to short UAUA and no shares available, so I asked my better half to please short on his IB platform. I would've shorted 2000 shares, but I didn't specify quantity, so he shorted 200 shares @ 13.86 and covered at 13.60 for a $52 gain. Stock set up for another short a little later when it once again hit its head against that 14 resistance, but I suspected there could be a short squeeze rally because a) every trader in the world was probably thinking the same thing (short this puppy around that 14 resistance level), and b) what starts before the mid-day doldrums often continues after lunch. So I provided these instructions to my finer half: short 1000 shares now at 13.85, then if it rallies, scale into 1000 more at the following levels - 14.25 and 14.50. We actually ended up scaling in at 14.35 and 14.52 for an avg price of around 14.10. When it went above 14.60, I suggested he double the position, but at this point he was certain I had lost my mind, and refused We closed the position at 13.95 for a $300+ gain, leaving a bit of money on the table. Now, normally I would have set a tight stop at 14.10 after getting the initial 1000 shares filled at 13.84; however, UAUA had been rallying hard for days and was trading near a 6-month high, so I was also comfortable with this as a swing trade short in the event it did not pull back to a profitable range today.
+ $189 FWLT hitting lows. Bought 500 shares @ 25.85 on stochastic cross up in a very oversold environment. I made several mistakes on this one: Tried to pick a bottom, which in and of itself is not a terrible thing with good trade management. This trade gave me a chance to exit around break even when it rose to 26.01, pulled back then rose to 25.98, which was a distinct failure to make a higher high. This generally indicates more weakness to come. However, I was looking for a retrace to yesterdayâs low of 27.60, and set a stop @ 24.50 just below last Fridayâs LOD, figuring it would not go that low and I would hold overnight if necessary. Well, it drifted down and eventually hit my stop for a $665 loss. Just bad long trade management in a down trending market. Shorted UAUA via husbandâs IB platform again. Shorted at 16.12 and covered at 15.96 for a $423 gain. Shorted again at 16.08 and covered at 15.89 for a $234 gain. Both trades made gains in just a couple minutes. Nice trading vehicle. Later in the day I proved that I could actually follow my trading strategy and my trading rules when POT finally failed to make a new low and I went long @ 66.75. Failure to make a new low is a much stronger signal than trying pick an initial bottom. I knew any bounces would be small so I set a conservative limit at 67.20 when it looked overbought, which was hit for a $225 gain. Was tempted to go long again end of day but didnât want to hold overnight coming into jobs report. Too bad, because I missed the best rally of the day. My profitable trades were all opened and closed within 3 minutes or less. Take the money and run
+ $724 Shorted UAUA all day via my very best half. I donât know how to use his IB platform, and by the time he was up and in action the biggest moves of the day on UAUA were over. However, it went into major consolidation and became a scalping ATM machine. The last trade was a miscommunication entered too soon, then there was the expected short covering rally after the drift downward, so the profit was much smaller than expected on that one. Hopefully Iâll learn IB this weekend so I can short this and other stocks from IB directly. (Etrade never has solar, airlines, financials and a lot of other shares available). I missed a good short entry on AMGN, by expecting a run up to 55.90 and it went to 55.85 at that point and reversed. But I wanted to be very conservative with shorting an uptrending stock in a strong sector today. Late in the day missed a MA short by seconds. It re-tested and dipped very quickly and I absolutely did not want to chase it and get caught holding anything short over the weekend (Can you say emergency rate cut with me?). OK maybe not, but it COULD happen. :eek:
- $645 Scalping UAUA most of the day to the short side made nearly $2000 today. Since all I did was call out some entries and my husband's doing all the work now, I'm not going to take any credit for that. Later in the morning I start watching MA for the perfect short setup, so I could use the market weakness and relentless hedge fund selling to my advantage. Finally, around 1:30 it rallies hard off a pretty strong pullback, which I figure is a short squeeze. I scale in at an average price of 133.07 using limit orders. It rises a bit more, then pulls back a bit, then my Level II goes completely wonky, bid/ask all messed up and not matching time/sales stamps at all. I'm not sure whether to set a target exit price, a stop or a bracket. Then my LII returns to normal and displays a further rally, so I set a buy stop at 134.95, which appears won't be hit because the stochastics are way overbought and have now pivoted down from the 134.66 high. I submit the order, except I didn't realize that it was a limit order, not a stop, because it keeps the last order type placed as the default. I have only made this error once before, I've been so careful since that time, but I think the period of time with no proper bid/ask displaying rattled me and I made this stupid mistake, got immediately taken out at market (134.60) for the loss and of course the stock tanked beautifully after that. It was tempting to short the next rally, but it's been impossible to tell what's going to happen at the end of each day. Yes, that turned out to be the best short of the day (If you're wondering why I didn't short right away again after the mistake, it was because it wasn't until I called my broker to find out why I got taken out below my "stop" that I found out what I did wrong.)
+ $523 Tried to short AMGN twice and missed entries by pennies. So after the second major rally of the morning failed to establish a new high, I decided to short the next rally with a mental stop at the previous rallyâs high and a target profit based on holding a ruler up to establish the trend line of the last two higher lows. I felt so professional in my technical analysis. I figured since the stock was strong overall and was establishing lower highs, but higher lows, the profit potential of this short play compared to the previous two would be limited. The analysis paid off, because my target price of 59.46 was hit just .05 cents from the low of that move for a $150 gain. I watched MA this morning and missed the first short by waiting too long. Then I watched the buildup off the LOD and when the price came close to the HOD but failed to test it, my short setup looked solid (stochastics overbought), but again I missed the entry. I was just too slow to get the order placed at the price I wanted. It was just as well, because after a very minimum drop, the short squeeze was on full throttle and the stock went from 136 to almost 144 in less than 30 minutes. For the third time I missed the short entry by asking what I thought for sure would be a test of 144, but it came in just under. I tried a couple FWLT shorts in the meantime and missed entries, the price dropped so fast from the time I was about go in. So, after the FOMC I noticed another major rally in MA and this time I was bound and determined to take advantage of what I expected would be a nice clean drop off a high. First it hit 144, slowed down, and the stochs looked good, but I figured anything could happen, so I watched the action very carefully, finger on the trigger. Sellers started to overcome buyers after the peak to 144.30 and on the 3rd and weakest doji bar (3-min chart), I placed my limit order for 143.50, sensing the weakness finally coming. Had to wait a bit, but got filled on a brief move up and down it went beautifully. I exited at market when I had a $2 a share gain ($400), not wanting to tempt short squeeze fate, but there was still another couple dollars in there if Iâd waited for stochastics to bottom out.