The Shorting of Frauds, Overhyped and Bankrupt Stocks Journal

The only way the short and hold strategy can work is if you can predict the news flow well, otherwise it is just going to go up.

Being short and enduring the torture also hurts the trader in another way, it sucks up mental capital as all your energy tends to be drawn by plays. It clouds your judgement in other plays and the result if that you lose money in the shorts and miss/mismanage other plays because of the torture. I have been daytrading actively this year, I have to manage my 'mental capital' well, as a result I had to put this strategy aside. I might come back when the fundamentals matter again
 
Quote from Daal:

My definition is high short interest stocks, ZH has provided good stats on this being one of the hottest sectors of the market
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Yes I have seen those articles.

I agree with you about momentum names being dangerous to short.

But with something like NQ or IOC, now that there are concerns about those companies, it's difficult to see them making new all-highs. They also have a lot of overhead resistance.

Whereas with DDD or Z, because there are no fraud concerns, momentum alone could carry them higher if the market remains strong.
 
Quote from Daal:

The only way the short and hold strategy can work is if you can predict the news flow well, otherwise it is just going to go up.

Being short and enduring the torture also hurts the trader in another way, it sucks up mental capital as all your energy tends to be drawn by plays. It clouds your judgement in other plays and the result if that you lose money in the shorts and miss/mismanage other plays because of the torture. I have been daytrading actively this year, I have to manage my 'mental capital' well, as a result I had to put this strategy aside. I might come back when the fundamentals matter again
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Thanks again for your insights. Something for me to think about when considering adding to my TSLA short if it gets back above 150.
 
I can only speak for myself.
Have taken a break swing trading from the short side, the recent market action has gotten me back in.

Things that help:
I am somewhat 'hedged' by being long spy calls
I use stoplosses, ok you might sometimes miss some huge blowups, but i like to add new short positions all the time to make up for the stopped out ones.
I try to keep my position sizes small.
 
Quote from m22au:

Yes I have seen those articles.

I agree with you about momentum names being dangerous to short.

But with something like NQ or IOC, now that there are concerns about those companies, it's difficult to see them making new all-highs. They also have a lot of overhead resistance.

Whereas with DDD or Z, because there are no fraud concerns, momentum alone could carry them higher if the market remains strong.
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NQ could actually be a good short because its listed in the NYSE. They are more aggressive in halting stocks and asking for more information, if the stock gets suspended it usually opens down 80-90% in the grey sheets. They halted FU. LLEN was Nasdaq and got halted too but the naz ones are tricky because the whole exchange is full of frauds (specially the biotechs) so it seems that they only do it when its blatant and is a small company

NQ either goes to $20 or to $3. If I could get in puts cheaply I would do it. I might shop for it Monday. At least I know how much I will lose

If they halt the stock you have to exercise the puts at expiration even though they might be out of the money (using the last price), that way you will be short at the strike price and participate in the plunge once it reopens
 
Things like:
Bears like Hugh Hendry throwing in the towel.
People expecting another '99 environment.
Small retail investors buying stocks again.
Everyone and his dog being long.

Are actually very bearish in my book.

Musings: Who is left to buy when everyone is long?
What will happen when a big fund manager wants to reduce most of his longs? Do you think his buddies want to hold the bag/ be the last man standing?
 
Quote from Chuck Krug:

Things like:
Bears like Hugh Hendry throwing in the towel.
People expecting another '99 environment.
Small retail investors buying stocks again.
Everyone and his dog being long.

Are actually very bearish in my book.
More...

One thing that I learned is that if you are short and things go parabolic, frequently even AFTER they tank back down, you will still be underwater. On the other hand you can ALWAYS short a breakdown, if ES starts to puke after the taper, I will be shorting a breakdown. Where to take profits is more difficult because if they buy the dip you give it all back but if they don't and you cover, you miss out a big collapse

As far as contrarian indicators are concerned, I noticed ever since ES 1200 or something yet stocks keep marching. As I said, I rather play defensive and avoid being short and actually wait for a breakdown in the indices to short. I'm not going crazy long either. Too dangerous for me
 
Very wise Daal.
More money has been lost calling tops than any other way. It is every starting trader's mistake to get in and out too soon.
Markets don't tank off record highs, they always show their hands beforehand.

But for me: the small caps that i follow were being squeezed hard the last 5 months. This seems to have stopped the last 1-2 weeks. When this actions starts again I will re-evaluate.
 
Quote from Chuck Krug:

Very wise Daal.
More money has been lost calling tops than any other way. It is every starting trader's mistake to get in and out too soon.
Markets don't tank off record highs, they always show their hands beforehand.

But for me: the small caps that i follow were being squeezed hard the last 5 months. This seems to have stopped the last 1-2 weeks. When this actions starts again I will re-evaluate.
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Thanks for your thoughts Chuck Krug and Daal.

Regarding your last comment Chuck: I think Kevin Marder has noted that many momentum stocks peaked on about 1 October.

https://twitter.com/mardermarket
 
Quote from Daal:


As far as contrarian indicators are concerned, I noticed ever since ES 1200 or something yet stocks keep marching.
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This is something I learned from reading Kevin Marder many years ago:

"the news itself doesn't matter: it's how the market reacts to the news"
 
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