The slow death pattern what do i do with it?
- Thread starter mute9003
- Start date
I dont really think there are a lot of people shorting pennies...the risk is so great it scares retails...I cant imagine institutions doing it but maybe im wrong. I genuinely think the buying gets hyped on mediocre news by bagholders thirsty to unload. buying dries up and price stalls...then the slow death occurs as retail bagholders slowly throw in the towel one by one as they accept what has happened.
This pattern is "easy" because it's hard to actually profit from it. Consider the options:
Shorting. So you need to borrow shares and watch out for borrowing rate. Furthermore, the "apparent easy" slow money part is counteracted by potentially explosive multiple 100% (or historically potentially worse) gaps. Dealing with those either requires incredibly careful position sizing (and huge numbers of positions to make any money) or being long calls - similar to next paragraph. Better left to algos than discretionary trades IMO.
Long puts. Assumes you can even buy puts in the stock at reasonable spreads. The problem is, everyone selling them knows the stock is going to shit and puts will be priced accordingly - no free lunch.
My suggestion: Do some backtesting on these, and you will see the no free lunch aspects. At least, after doing this kind of basic sanity checking is why I haven't ever shorted shit stocks yet. If I just did it blindly, it would seem to work great for a while and then one day I would be wiped.
On the flip side, I've heard traders refer to this as being maybe the best easily available edge out there for retail, since the complicated part is implementing it, not spotting it.
Shorting. So you need to borrow shares and watch out for borrowing rate. Furthermore, the "apparent easy" slow money part is counteracted by potentially explosive multiple 100% (or historically potentially worse) gaps. Dealing with those either requires incredibly careful position sizing (and huge numbers of positions to make any money) or being long calls - similar to next paragraph. Better left to algos than discretionary trades IMO.
Long puts. Assumes you can even buy puts in the stock at reasonable spreads. The problem is, everyone selling them knows the stock is going to shit and puts will be priced accordingly - no free lunch.
My suggestion: Do some backtesting on these, and you will see the no free lunch aspects. At least, after doing this kind of basic sanity checking is why I haven't ever shorted shit stocks yet. If I just did it blindly, it would seem to work great for a while and then one day I would be wiped.
On the flip side, I've heard traders refer to this as being maybe the best easily available edge out there for retail, since the complicated part is implementing it, not spotting it.
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There are a lot of opportunities and stockcharts on smallcaps is just as good as those on big cap stocks. Each trader analyzes each stockchart differently, and I have added my own secret sauce to make it more effective.