How to choose stocks for shorting, based on their past performance?

[Kust]

Momentum investing traditionally implies long-only strategies. I'm trying to adapt its ideas for shorting stocks when the market trend is bearish.

For choosing stocks, is it better to use their absolute returns (volatility adjusted) or performance relative to some index?

Even more important question. What time period to use? 12 months or 6 months or some other?

I understand that one can answer all these questions with the help of backtesting. But I'm still a newbie. Conducting such a backtesting would be an overkill for me.

 

[cruisecontrol]

So let me get this straight. You want to play the hedge fund/quant game, but can't even be bothered to run a backtest? What is it about finance that makes people think they can compete with a literal army of PhDs without doing any hard work?

Do you realize that hedge funds have been performing terribly (on average) for years, even with all the money and smarts available to them? Backtests are the bare minimum of due diligence in this game, they don't guarantee anything but not having one is almost a guarantee of failure.

Here's my advice for you: Imagine how much time you would have to spend working to make back all the money you lost by shorting stocks with a strategy that wasn't even backtested. Now ask yourself if you're willing to spend that much time researching how to actually trade. If the answer is no, stay far far away from shorting stocks. Buy and hold is always a good alternative for lazy people.

 

[cornerstone]

Momentum investing traditionally implies long-only strategies. I'm trying to adapt its ideas for shorting stocks when the market trend is bearish.

For choosing stocks, is it better to use their absolute returns (volatility adjusted) or performance relative to some index?

Even more important question. What time period to use? 12 months or 6 months or some other?

I understand that one can answer all these questions with the help of backtesting. But I'm still a newbie. Conducting such a backtesting would be an overkill for me.

it will help you to understand movement price if you want to enter in a right place for short trade. check out Bookmap, it gives a clear look about the price movements. they got great education videos about the software.

 

[murray t turtle]

So let me get this straight. You want to play the hedge fund/quant game, but can't even be bothered to run a backtest? What is it about finance that makes people think they can compete with a literal army of PhDs without doing any hard work?

Do you realize that hedge funds have been performing terribly (on average) for years, even with all the money and smarts available to them? Backtests are the bare minimum of due diligence in this game, they don't guarantee anything but not having one is almost a guarantee of failure.

Here's my advice for you: Imagine how much time you would have to spend working to make back all the money you lost by shorting stocks with a strategy that wasn't even backtested. Now ask yourself if you're willing to spend that much time researching how to actually trade. If the answer is no, stay far far away from shorting stocks.
Buy and hold is always a good alternative for lazy people.

%%
Mostly true, CC , especially true on average hedge fund comments.AS far as buy+ hold ETFS /mutual funds or even long term trends being for lazy people-that is a laugh. However you may have meant stocks only/original question Not a prediction ,not bank insured.

Speaking of laughs, the first time I read the following, thought it did not apply to me.LOLIBD[newspaper] founder notes; beginners want to much ,with too little work They changed the name of newspaper to 'Weekly'' but I like the old newspaper name[Daily] still.

 

[cruisecontrol]

%%
Mostly true, CC , especially true on average hedge fund comments.AS far as buy+ hold ETFS /mutual funds or even long term trends being for lazy people-that is a laugh. However you may have meant stocks only/original question Not a prediction ,not bank insured.

Speaking of laughs, the first time I read the following, thought it did not apply to me.LOLIBD[newspaper] founder notes; beginners want to much ,with too little work They changed the name of newspaper to 'Weekly'' but I like the old newspaper name[Daily] still.

I didn't mean to imply that everyone who does buy and hold is lazy. On the contrary, it is a great choice for many people as they can focus all their time being productive in other ways. But people who are too lazy to do a backtest should not attempt to run their own hedge fund, it is not likely to end well

 

[murray t turtle]

I didn't mean to imply that everyone who does buy and hold is lazy. On the contrary, it is a great choice for many people as they can focus all their time being productive in other ways. But people who are too lazy to do a backtest should not attempt to run their own hedge fund, it is not likely to end well

%%
Exactly;
+ i did get rid of a gift-a extra comfy chair with the brand name of ''Lazy Boy'' LOL.I would never buy a brand like Lazy Boy -it's on the wrong side of the Investors Business Daily/Weekly rule[ ''you snoze [too much]you lose[ too much]''

 

[ironchef]

Momentum investing traditionally implies long-only strategies. I'm trying to adapt its ideas for shorting stocks when the market trend is bearish.

For choosing stocks, is it better to use their absolute returns (volatility adjusted) or performance relative to some index?

Even more important question. What time period to use? 12 months or 6 months or some other?

I understand that one can answer all these questions with the help of backtesting. But I'm still a newbie. Conducting such a backtesting would be an overkill for me.

I don't have the answer for you because I now trade options instead of the underlying stock. For option traders going long or short come naturally.

We amateur retail options traders can bet on bullish or bearish underlying by buying call or put or selling put or call. Usually if we are certain of the timing, like around earning, or news, we trade weekly. If we are less certain, we tend to go longer time frame.

Professionals on the other hand tend to trade more exotic combination options and that is beyond my capability to explain.

Welcome to ET.

 

[kj5159]

Well if you're going only off of past performance, you have two choices. Has it been rising or falling?

Pro tip: there's more to look at than just this.

 

[murray t turtle]

Well if you're going only off of past performance, you have two choices. Has it been rising or falling?

Pro tip: there's more to look at than just this.

%%
Exactly; +also look for plenty of fundamental screw Ups. LOL[As in TSLA, GE.....] About the only thing bullish on GE-they sold it so much from$60 down to $6.66, maybe not sold out yet LOL??
Tech stocks leaders tend to be super strong, even though QQQ has had an 80% drawdown-could happen again.
Comments based off 52,,+ week charts.

 

[cdibor2019]

Hi Guys. I'm using Dr Alexander Elder The New Sell and Sell Short Chapter 7 (2nd edition) to pick stocks to short. He gives a step by step methodology there.

My strategy is to start by trading put options first (because the strategy used for puts should also work for shorting stocks because you're anticipating the market moving in the same direction-down). I will lose money as part of the experience of learning as a trader and losses with options are limited to the cost of the option. Losses shorting stocks are much higher!

Does anyone else have any experience of moving from trading put options to shorting stocks? How easily did profits in put option trading translate into profits shorting stocks? Thanks for the feedback.