going short

I am a newbie NYSE trader who has been nicked a few times going long recently. I've always cut my losses short so I have survived so far. I have never gone short. I can't find a book on how to do that carefully. Kathryn Staley's The Art of Short Selling was mostly anecdotal (and some of the anecdotes were about shorts getting killed in the late great bull market). I have skimmed several trading/investing books and got a few hints, but I also encountered some VERY scary stories about people who lost everything they owned (example: when KTEL went from $7 to $40 in half a day. It had 700,000 shares outstanding and a very small float). What rules to you have for selecting stocks to short that allow you to do it with such confidence?:confused:
 
You seem to find fault in my stating the obvious, and imply that every comment is somehow a stab at retail trading or something. Sometimes the facts are just that, facts.

Here is a good way for you to be able to make money on the short side without hoping for upticks after the market starts selling off, and without joining a prop firm. You simply .....never mind, that would help people make money, and my intention is convert everyone into a prop trader, I forgot.

(Just being silly...try this)

Many traders, who do this for a living, short a stock, then immediately buy a "Paired" stock within the same group early in the day (say 2000 shares). Now, if the market looks strong, the simply buy in the short, or add to the long.

If the market starts to tank, they simply sell out their long stock, resulting in a great short position.

Simple tactic, simple profits. Have a great trading day!!

Don
 
Don,

My comments reflect my experience. You have no doubt more experience than me, however I suspect you have an agenda when emphasizing the profit opportunities on the short side (with bullets of course). I am just trying to give another perspective and dispel some of the myths and preconceived ideas in trading for the new traders. I think it's very important to think out of the box to succeed . There are some great traders who feel the same about shorting, Borsellino for one if I recall his comments in his book. The reality is that shorting is very difficult to master and the rewards are smaller (you can't make more than 100% at best).

Mainframer,

some say you should start shorting intraday only . Holding a short several days is very risky, you'd better know the fundamentals and not just trade on technicals. Intraday some short gaps, price resistance, exhaustion moves, failure tests pullbacks in downtrend, new lows, break of yesterday high, multi day low etc. I personally prefer to combine patterns in different time frames and pullbacks to MA/trendlines to try very precise entries with stop under 30 cents.
 
Originally posted by Kicking

The reality is that shorting is very difficult to master and the rewards are smaller (you can't make more than 100% at best).

Holding a short several days is very risky, you'd better know the fundamentals and not just trade on technicals.
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I've never understood that argument. Why are the rewards for shorting smaller? Theoretically a stock can go to infinity on the upside and only zero on the downside, but so what? Long term expectations are irrelevant to a short term world. How many traders, especially short term traders, have been in a stock long enough to say "well dang, now it's at zero, guess that's all I get?"

As for risk, I am equally puzzled as to why holding shorts is more risky than holding longs, especially in the current environment. If it goes against you X amount, you get out. Period. Same in both directions. Are you suggesting that even here and now, with tech wrecks falling out of the sky like kamikaze pilots, that a gap up is still a higher probability risk than a gap down?

It seems to me that this line of thinking is due to a psychological imprint that comes from entering the market during a period of strongly bullish conditions. I think if you step back and logically consider all the elements, you will find that neither side is inherently more "risky" than the other. And if anything, the possibility of another terrorist attack out of nowhere suggests the bulls should be the ones to proceed w/ extra caution.
 
I don't hold overnights , long or short overnight is equally risky to me. As for daytrades with the uptick rule you essentially sell something that starts going up . Depending on your risk tolerance your stop actual or mental can be hit very quickly, a move up a quarter can happen in a blink of an eye with the stocks I trade. If you can exit and reenter at will that 's not a big deal but not everybody is able or willing to do that.
 
Originally posted by Don Bright
Many traders, who do this for a living, short a stock, then immediately buy a "Paired" stock within the same group early in the day (say 2000 shares). Now, if the market looks strong, the simply buy in the short, or add to the long.
If the market starts to tank, they simply sell out their long stock, resulting in a great short position.

Would Don or others please run through some of the most common paired stocks their traders use perhaps on different exchanges or in different groups.

Thanks.


Geo.
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Originally posted by Kicking
As for daytrades with the uptick rule you essentially sell something that starts going up .... If you can exit and reenter at will that 's not a big deal but not everybody is able or willing to do that.
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True. I hold most everything for at least 24 hours- unless it goes bad from the getgo, which doesn't happen too often- and I'm also more interested in dollars than cents. So we might be talking apples and oranges in terms of trading style, which could explain some of the discrepancy between our viewpoints.

To put it in a nutshell, here's my view of "Bias 101:"

strong = long

weak = short

can't say = don't play
 
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