do you typically wait for a "confirmation candle" before going short?

[stockmarketbeginner]

Hello,

Suppose a stock runs up a *lot* (too much too soon), and you are confident it will retrace. Do you typically wait for meaningful down day before buying puts?

I saw a nice top, but waited. I even had the luxury of being able to make a decision immediately after an earnings report, thus minimizing news risk to the trade. The retrace started (stock price down 5% in one day), and the options price went up from .25 to .35. So I missed a huge relative gain (40% appreciation in one day). Sure, the down day gave me reassurance that I found the top, but I missed out on a lot of gain.

Even if the stock ran up a bit more, I believe the put would have declined only to .20, because it was a far out of the money put several months into the future.

I was wondering if there is some sort of mathematics, axioms, or best practices regarding this.?

My instinct was telling me to buy at the .25 price on a green candle, but I though maybe the professional approach is wait for a down day before buying the short put.

 

[Scataphagos]

Hello,

Suppose a stock runs up a *lot* (too much too soon), and you are confident it will retrace. Do you typically wait for meaningful down day before buying puts?

I saw a nice top, but waited. I even had the luxury of being able to make a decision immediately after an earnings report, thus minimizing news risk to the trade. The retrace started (stock price down 5% in one day), and the options price went up from .25 to .35. So I missed a huge relative gain (40% appreciation in one day). Sure, the down day gave me reassurance that I found the top, but I missed out on a lot of gain.

Even if the stock ran up a bit more, I believe the put would have declined only to .20, because it was a far out of the money put several months into the future.

I was wondering if there is some sort of mathematics, axioms, or best practices regarding this.?

My instinct was telling me to buy at the .25 price on a green candle, but I though maybe the professional approach is wait for a down day before buying the short put.

The notion of "confirmation" is a myth.... there is no such thing.

Of course you'd like to get some kind of "reinforcement" that you're SURE you're doing the right thing with risking your money.... as would we all. Unfortunately, there is nothing like that.

 

[lawrence-lugar]

Hello, you are confident it will retrace

I was wondering if there is some sort of mathematics, axioms, or best practices regarding

Well, you're asking The Million Dollar Question of trading...the future. and no one has a crystal ball, excluding inside information.
The nature of trading...placing each and every trade, boils down to an ultimate subjective personal Judgement Call, at that moment.

Some times your hard rules and theories and lessons will work and apply, other times they won't. Or it may be a cross somewhere in between...and that's partially the art side of trading.

Only time will tell, if you made the right call...or wrong call. And being wrong is ok...so long as you're smart and open-minded enough to realize it, and correct it.
If you wait for a definite, true, long verifiable trend happening and unfolding...your net profit from that trade will be less.
Fortune favors the Bold, and/or early.

 

[qxr1011]

Suppose a stock runs up a *lot* (too much too soon), and you are confident it will retrace

imho lets leave the confidence for the dentists who play stock market, for the traders there should be the signal

what the signal should be based on?

for the run up market it either hitting the resistance or the sigh of exhaustion if there is no resistance above

 

[eurusdzn]

Confirmation for this amateur was always a delay or lag to enter. Not saying its bad but maybe its another system or method and should be treated as such.
Moving averages are excellent for confirmation.

 

[zdreg]

"
do you typically wait for a "confirmation candle" before going short"
no, I don't play with candles. I don't want to get burned.

 

[padutrader]

you do not short if stock runs up a lot...because it can still walk up a lot and then it can crawl up a lot.....
that is invariably happens when a fast move occurs: it keeps going but slower and slower and slower..and then it gets exhausted and then it usually takes rest,and does not do anything, just stays in the range.
after the range it tests up and down to see in which direction it can go with least resistance.
sometimes it gives signs like in the chart below that it is tiring : the market touched the moving average,arrow marked 1,and immediately went up. in the next touch marked with the next arrow,the market and hung around the moving average for 4-5 bars ; and the next arrow, market went below the moving average.The next arrow you can see it went down and then recovered.
if you observe this you will realise that the move is weakening.
If you see this you should also realise why experienced traders only trade with the trend.
first your reason for shorting because 'it ran up too much' is not a technical reason and trading shorterm should be done on the basis of a number of technical reasons.
in the chart below i am short because i am prepared to add to positions if it goes up.my position size is always so small that i can always add.that is why i do not keep stops.
incidently if a stock has run up too much you should be thinking of calls not puts because after the retrace it will continue going up.trying to time retracements is not possible because no one knows when the retracement will actually come. i would have gone long and added during the retracement

i

 

[padutrader]

NOW YOU CAN SHORT see chart but put premiums would have skyrocketed. the probability of your short trade has gone up, so when probability goes up, you have to accept a lower reward.
so it all depends how you want to manage your short trade how much risk you want to take in order to get more reward. some traders will keep shorting as the market goes higher and higher and you can do that if you have deep pockets or if you can dip into the pocket of Goldman Sachs

below

 

[tomorton]

Hello,

Suppose a stock runs up a *lot* (too much too soon), and you are confident it will retrace. Do you typically wait for meaningful down day before buying puts?

I saw a nice top, but waited. I even had the luxury of being able to make a decision immediately after an earnings report, thus minimizing news risk to the trade. The retrace started (stock price down 5% in one day), and the options price went up from .25 to .35. So I missed a huge relative gain (40% appreciation in one day). Sure, the down day gave me reassurance that I found the top, but I missed out on a lot of gain.

Even if the stock ran up a bit more, I believe the put would have declined only to .20, because it was a far out of the money put several months into the future.

I was wondering if there is some sort of mathematics, axioms, or best practices regarding this.?

My instinct was telling me to buy at the .25 price on a green candle, but I though maybe the professional approach is wait for a down day before buying the short put.

I don't believe in trying to get short when a chart has printed a strong uptrend. Its a game which a small number of skilled old hands can win at but which almost all new traders believe is the road to success. You might disagree but if there was a way to gather the data, I think we'd find that 90% of the 90% who are wiped out in 90 days have been doing this.

At least you're not day-trading.

 

[padutrader]

Now this happened; something unexpected so when something happens, that is not supposed to happen, you cut position and take your loss.