Solution, congratulations on your nice profit! There are many strategies for shorting (and buying long) and I can only explain my approach. But you may want to participate on Roger's thread:
exchange2000.com
There are many knowledgeable posters that follows Roger's thread ... but they are not always right! I agree with the "start small" advice offered by Patrick. However, I disagree with his advice on setting limits.
My approach (long or short) is to try and determine the valuation of a company based on future fundamentals. This takes some serious work and unfortunately I end up discarding most stocks - since they are priced closely with my estimates. When I find a stock that is significantly over or under priced, I really go to work (like ACLY). Once I understand the future fundamentals, I buy or short the stock, with the intention of holding for at least a couple of years (I am not a trader).
If the stock moves against me, but the future prospects do not change, I might add to my position. I would never close a position (as Patrick suggests) solely on the basis of a price move against me! If I liked buying AMAT at 30, why not add a little at 25? If the fundamentals change, I might close the position. I'm always willing to change my mind. Caveat: I don't "average down" to lower my price ... I only add to the position because the fundamentals say BUY (or short). I have also set diversification guidelines for my portfolio.
Shorting is a good exercise if you are careful. I use it as a source of funds for my long positions! As an example, if you shorted 1000 shares of ACLY on Jan 1st ... you would have an additional $27K in your account to invest. (Only short with brokers that pay you interest and allow you to invest the proceeds in marginable securities!) If the stock does not move, this is an interest free loan. Even if it goes up ... that is OK, as long as the proceeds are invested in securities that go up more. You are still ahead!
I hope this helps.
Regards, Bill
P.S. I still surf, hike and climb the occasional mountain. You are never too old! |
