I have watched/traded the markets now for a few years (as a nasdaq MM and prop trader) and I am almost positive that shorting stocks is easier than going long. If you ignore extremem overall market conditions, in a choppy or flat market, even slight uptrending, stocks that are declining seem to move more deliberately than stocks that ar going up. Most of my successful trades are from shorts and my % of wins is much higher. I am convinced that it is due to psychology. People in general play the long side. when a stock heads south, they feel pain and sell contributing the decline. Has anyone else felt this way?
I can lose either short or long. I like long better because the profit can be greater than 100 % with a long position. Short positions make 100 % profit maximum if security price goes to zero. I assume no use of leverage.
Because of the market's upward bias, I find it easier to identify relative weakness in individual stocks. When the market is in an uptrend, declining stocks are easy to spot and you can use the occasional buy programs to short weak stocks taken up by the overall market. I trade intraday and more than 60% of my trades are to the short side.
Makes sense. Basically I am using a filter to find stocks which are trending are higher than average volume and are trending up or down on an intraday timeframe. It seems after looking at charts, the initial moves are often very direct and pull back very little.. vs the uptredningf stocks which have more "whipsaw" in them... I guess that is what I was trying ot say overall.
i agree. It is hard to find "the next big thing"...because everyone is always on the buyside. But, if a stock simply isnt going up (epcially if the fundamentals and general environment are good), it tends to be a high percentage play to go down with it. I also like to sell short becuse you can easily see in history what WAS in favor but now coming out of favor (like real estate, oil, gold, maybe some of the banks after the record earnings). For example, I would bet my net worth that homebuilder stocks will be lower this time next year than they are today...it is ALMOST a sure thing. But unless you have a really good chrystal ball...who has any idea what will be in favor next week or next month.
Interesting point of view. I didnt really think of it like that, but it makes sense. I might try to incoporate this in my filters. I hate the idea "the market" is trendng up therefore go long... There are always sectors or stocsk with "bad news" that cuase violent daily moves, even in the strongest of markets..... I am not saying always trade against a trend, but using a filter if volume and the setup present itself it seems logical to go with it. I have seen many issues drop like a rock in strong upward markets.