and I insisted on "getting my profit back", so I rode it all the way to $180 (ouch!),
My comment is meant not as an insult but for educational purposes (I hope is taken that way).
What are you nutz or something? :)
As credentials I have thousands (no exagerations) of short trades each year, and the very very last thing you want to do is ride one out when its losing, at least not more than a reasonable pre-defined stop loss.
Short or long, it doesn't much make sense to hold a losing trade, one that has gone against your reason for entry, because by virtue of going against you, whatever premise that took you into the trade is now invalidated.
These days shorting is somewhat easier, in fact some might say you are going with the trend now :), but we need to be careful here. Stocks often fall much faster than they rise - this is the good news. The bad news is if you enter a short trade at the bottom, or at a key inflection point, and it starts to go up, well, you will get creamed.
Successful shorting can be done, but you need to enter your trade under one of two conditions:
1. At the top. Hard to do for most and really demands that you be a good technical analyst.
2. At a retracement. This by far is the easiest entry. Wait until the stock has turned around and is heading down, and then, eventually, the stock will head up to touch a trend line or a down-sloping 13 or 20 period moving average.
Enter your short trade underneath up bars. I.e., do not enter the trade while its still moving up. Shame with stocks that we can't sell short on a downtick, would make things much easier... essentially you want to look at each new day's bar and if it is a higher high, higher low (irrespective of the close), its still moving up. Place a mental sell short stop just under the low of that bar. If tomorrows bar moves through that mental stop, its time to get short.
It takes some experience but the basic principle is trade with the trend. It may help long-traders to come over to the dark side if they just turn the charts upside down -- use that chart to pick where you might normally go long, and away you go.
Needless to say this is much easier if the trend of the market is with you. And the key question around these parts is still what is the longer term trend direction now - up, down or sideways.
Back to my opening comment, don't hold trades, and especially short trades, if they move too far against you. Very painful and you are guaranteed to cover at the top, the longer you hold it. best to take the loss small and early, and be patient and wait for a better entry. With today's cheap trading commissions there should be even less hesitation in closing a trade that goes against us.
Hope this doesn't sound preachy or anything,
cheers
mw |
