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Strategies & Market Trends : Pump's daily trading recs, emphasis on short selling
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To: Michail Shadkin who started this subject7/8/2001 12:29:11 PM
From: Michail Shadkin  Read Replies (1) of 6873
 
Allocation and Risk Management

This is a repost for those that missed it.

When shorting, it is inevitable that short squeezes will occur eventually in some stock or another.
Using a proper allocation model can make these squeezes less painful and in many instances even more profitable.

So far in almost 2 month on SI, I have gone through 2 (EPAY and WEBX) significant squeezes.
Lets look at EPAY as an example:

EPAY - according to my research a true pos (was a longer term position with no stops)
(I dont add to momentum shorts or TA shorts and always use stops on those)

initial entry was 5.57 for 1/2 position on May 17 (core position)
added at 7.72 another 1/2 position (trading shares)
added at 10.00 another 1/2 position (trading shares)

EPAY traded at 3.53 on Jun 18

First, a 1/2 position is $50K and about 3% of the portfolio
I added after a 39% jump and added again after another 30% jump.
Please notice the % intervals.
Total position became 9% of the portfolio

As the price dropped below 8, I covered my $10 entry to improve my cost basis and be ready to add if it ran again.
(I like covering trading shares to reduce risk and improve cost basis)

At 7.10 I covered my next batch of trading shares from 7.72
(more profits and once again improving my cost basis even more)

Eventually I covered my remaining shares at a decent profit also, but in retrospect too early at 5.25.

Point here is, I was short a stock that rose almost 100% after my initial entry and I was able to withstand any pain and ended making a very nice profit on all the shares.

This can only happen if you allocate well and never overextend yourself.

Lets assume someone shorted a 1/4 of their account at the initial 5.52 and another 1/4 of the account at 7.72
(assuming cash, not margin)

When EPAY got to 10.00 they were down 28% in their account and on margin down 56%

Btw, also notice what happen to WEBX since the squeeze to almost 30.

Let yourself sleep easy at night by learning and adopting a great allocation plan that you feel comfortable with.

Always make your plans and strategy before taking the position, always look ahead.

When I short initial core positions in true pos stocks for longer term, I actually always want those stocks to go higher.
(thats because I always have a plan before entering any position)

Have a great trading week.

Michail
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