Take a look at this 5 min candle chart of CAM. About 20 mins worth, price moved almost 2 points. Got the 10MA up, and you can see how quickly the price moved up. Shorted a 1/4 position midway down the first red candle, and shorted a 1/4 more at the completion of the candle. These quick price increases usually go down equally as fast as they go up, if not more, well from my limited knowledge and experience that is. Maybe they don't go all the way down, but the correction can be quite profitable if caught. After witnessing the price action of CAM for the last 15 mins of its up move, and witnessing the heavy selling pressure that followed, didn't seem like that red candle was going to turn out to be a consolidating candle before another run up so I shorted. My question to you guys....I'm basically catching a top, and playing the correction. Is this too dangerous of a game. Granted I ended up entering into 1/2 my usual position size due to the volatility, but do you think this play is too dangerous in the long term?
Yes and no. It's a risk/reward type of game. Best way to play it is to determine if there's enough negative pressure after the run to push it back down. However, to say "alright....it's gone up enough, im going to short" is simply not enough edge to play the game of "fading" That's easier said than done. IMO It's best to just go with the trend.
I find that these situations are far more easy to find if you analyze them in terms of standard deviations from the historical average of distance to N-Moving Average, where N is the applicable time frame. Even better if you use constant volume bars. Everything reverts to the mean eventually... Then again, I tend to use them for exits and don't bother trying to catch it on the way down ... too dangerous for me
yes, it is very dangerous. I once shorted Amzn last year first quarter earning release, I get burned hard in the parabolic move. also I shorted UTHR in the earing release, I get the same results. play those minor corrections are like walking on fire, better play the major trend direction, use those minor reactions as buying point. if you are not fast enough, most likely you edn up with huge loss if you lost mind like averaging down since the direction is wrong! I did lots of vertical bar down buy, pretty succesful and made big money on those Bars, yesterday I bought AMAG in the parabolic drop at 45 with 1000shares, sold it today at 53.