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Saturday, June 6, 2015

Shorting v.s Longing


This is regarding short term trading,  day-trading or so:
When going  long there are 8,000 stocks to chose from.
Where do you start?
Daily base break outs on stronger volume, continuations and so on is a way to go right?
 However there are tons of break outs every day simply the odds to be in few of the winners, the ones that you chose to trade are not so great and this is why: the odds may be 70:30 in your favor meaning out of 1000 break outs there will be 700 good ones (if so ). But you still have to chose that one trade out of the 700 good ones. However out of those 700 great break outs, lot  will happen so quickly that they will become more of a chase and you will miss them. Or even worse you chase them and you lose. So your odds decrease drastically.
The only moving power to go up are the LONGS who buy LONG. 
On the other hand is the shorting. From the 1000 long break outs 700 will make positive gains. From the 700 just very small amount will make a great rally, and as explained before, your odds to be in those few are not to great since you have to chose the few of those 700 that will make it big.
Possible but very tough.
You may say : "I'll go with the ones with greatest "volume buzz" right?
But the greatest "volume buzz" you will more likely miss because they will shoot up too quickly in the first few minutes after open. Then you wait to buy on pull back? ABCD pattern? So you already have much less to choose from. From those that will make pull back and intraday ABCD break out how many will keep going up after you buy?!? Who will buy after you? Are you quick enough to nail 'em?
Can you be in all of them?
I am not that quick and getting in many positions is not that easy, ( speaking for myself here)

Now let's look at the shorting edge:
From the 700 longs that you will have hard time to nail 'em, there will be very few that will make a big up move. So what I do is:  I just wait to see them. I am slow by nature maybe average  so watching fast moving stocks going up without doing anything is actually something I discovered I can do with great efficiency LOL.
Everybody can watch Formula 1 race!!! But not everyone can actually race! 
So from all of the 700 longs I will see the greatest ones. There will be very few. Maybe just one? Or 2? 10? Can I watch ten? With 5 monitors it is actually fun! Music in the ears, so I don have to listen  my monster PC fans LOL...so I do have the best movers out of 700! I could never guess them consistently if I was going long. But now guessing is out of the equation. I have what I need: the few biggest movers. 
 The main points here are: 
1) It is easy to see the few best ones
2) We know there is profit to be taken by the few longs who really got lucky to nail those few, so I don't have to worry about the mathematical odds weather I will be in few out of the 700 that will make it big (the challenge when going long)
3) The most important things are:

  • the drop I am anticipating is created by two type traders: the longs taking the profit and the shorts who are anticipating the drop so TWICE the power then when going long only by the LONGS and 100s of times narrower selection of stocks comparing when going long so the probability of the anticipated moves down are just so much greater.

This is why shorting on a day-trade or any short  term trading frame mathematically works better ( for me) , as I'm someone far from too smart or  too fast. 
However for this to work a bullish market is needed to have good runners, good smart longs profit takers, although shorting in bearish market using different approaches works well too. 
It is not easy, takes a lot of practice, study, patience to learn the ropes to eyeball  the higher probability entries. For new traders trading small size with very strict discipline is essential.
Remember: if you try to learn to hit tennis forehand it will take you thousands of repetitions ! If you have to pay a lot of money  for each missed shot you will go broke before you even feel the sweet spot!

Conclusion: Day Trading is successfully using mathematical odds, equations. Less unknowns  you have better the odds. Shorting is equation with two variable known: Profit taking by longs and selling by shorts on symbols you know there is profot to be taken. When long , what d you know ? Fundamentals? Great, but they can be interpreted in so many ways as there many traders are out there. I need no fundamentals when a stock is up 20% in a no time. Somebody will take profit and I'm just there to find out when.

Salute and happy trading 😀🏧👍

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