Another shorting question

Hey - looks like Aussiest and I are doing the same kind of homework at the mo.

It occurs to me that picking losers in the current market may be a tad easier than picking winners. Even Alexander Elder seems to be writing about it now. It certainly seems to be the kind of thing one should be on top of understanding, if not using. Which leads me to wonder:

1. Who here includes shorting as part of their trading activities?
2. Do you use shorting more as a hedge, or as a way of actively profit-taking?
3. If you short, can you recomend a broker?
4. To further unpack that last question - other than Tricom, Leveraged Equities and Trader Dealer, are there any online ASX brokers who are able to get around the three day rule? Are there any that DON'T require you to sign on for relatively expensive monthly data arrangements (ie: a shorters equivalent of comsec or etrade)?

Any replies at all much, much appreciated.

And yeah, I know shorting is risky, etc - it's just something I'm getting my head around at the moment. So while I understand that money management, exit/cover strategies and so on are super important here (and thanks all for your input on that in other threads), at this stage I'm more interested in basic mechanical details.

Thanks gang!!!!

Paladin said:

Hey - looks like Aussiest and I are doing the same kind of homework at the mo.

It occurs to me that picking losers in the current market may be a tad easier than picking winners. Even Alexander Elder seems to be writing about it now. It certainly seems to be the kind of thing one should be on top of understanding, if not using. Which leads me to wonder:

1. Who here includes shorting as part of their trading activities?
2. Do you use shorting more as a hedge, or as a way of actively profit-taking?
3. If you short, can you recomend a broker?
4. To further unpack that last question - other than Tricom, Leveraged Equities and Trader Dealer, are there any online ASX brokers who are able to get around the three day rule? Are there any that DON'T require you to sign on for relatively expensive monthly data arrangements (ie: a shorters equivalent of comsec or etrade)?

Any replies at all much, much appreciated.

And yeah, I know shorting is risky, etc - it's just something I'm getting my head around at the moment. So while I understand that money management, exit/cover strategies and so on are super important here (and thanks all for your input on that in other threads), at this stage I'm more interested in basic mechanical details.

Thanks gang!!!!

Click to expand...

We have been shorting stocks since April or so, initially with the help and advice of Nick Radge. Since then i also search for our own setups as well and we only short to make money and not to hedge positions. To put it simply, making money by trading pattern setups is like shooting fish in a barrel when the market is trending, up or down doesn't matter. If the market is churning or consolidating then you go into a period of draw down until the market starts another trend. Or stop trading or trade less if you filter and the filter offers no trades.

I use Interactive Brokers and trade mostly US stocks, but there are about 125 shortable ASX stocks. I'm not long any ASX stocks and don't intend to be. We are 70% short US stocks at the moment.

Cheers,


CanOz

CanOz said:

I use Interactive Brokers and trade mostly US stocks, but there are about 125 shortable ASX stocks. I'm not long any ASX stocks and don't intend to be. We are 70% short US stocks at the moment.

Cheers,


CanOz

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Thanks heaps for that CanOz! Great advice, and IB looks like the platform I'm after. Looks fab. Are there any risks associated with IB that you know of?

Paladin said:

Thanks heaps for that CanOz! Great advice, and IB looks like the platform I'm after. Looks fab. Are there any risks associated with IB that you know of?

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Its all outlined on their web site, but no. The only worry i have is if the bank where my account is held were to become insolvent. But if Citi-bank goes belly up i think we're all in trouble at that stage.

Cheers,

CanOz

It's hard Paladin. I was going to short new crap (NCM) today at around 29.50. It then shot up to 30.16.

The whole shorting thing is complicated. I don't know whether it's easier to pick losers at the moment. The other stock i picked as a short today is sort of urring on the edge.

I am going to take a very cautious approach, as I eroded some of my hard-earned profit last week with an unstrategic trade. Thinking i will look heavily at support and resistance levels...

But, there are other market forces which affect price, that’s why it takes a lot of research!

Good luck

Btw, i am curious. Why would anyone want to trade U.S. stocks, when there are enough here? Are they more volatile?

One other thing, be careful who you choose as your broker. I looked at IG Markets as they have been around for a long time and are (as much as they can be) reliable. Your funds are held in an ANZ bank account.

If a broker goes broke (excuse the pun), and you have a CFD position, i'm not sure where you stand. I don't think you would get your money back.

Another thing, if you are based in Australia, i don't see the point in having an international broker. The ones i looked at were: Comsec, E*Trade (although many technical errors on their platform), MQ Prime and IG Markets.

Aussiest said:

It's hard Paladin. I was going to short new crap (NCM) today at around 29.50. It then shot up to 30.16.

The whole shorting thing is complicated. I don't know whether it's easier to pick losers at the moment. The other stock i picked as a short today is sort of urring on the edge.

I am going to take a very cautious approach, as I eroded some of my hard-earned profit last week with an unplanned out trade. Thinking i will look heavily at support and resistance levels...

But, there are other market forces which affect price, that’s why it takes a lot of research!

Good luck

Btw, i am curious. Why would anyone want to trade U.S. stocks, when there are enough here? Are they more volatile?

Click to expand...

As for me, not particularly interested in the US stocks at the moment - too far outside my knowledge pool. But I guess the main attraction for shorters would be the greater number available there? As you know, there are only a relatively few stocks on the ASX suitable for shorting. I'll leave the volatility question to others - but I guess another factor in that respect is just how dicey the US economy is looking compared to ours.

Thanks heaps for sharing your experience. One thing that has led me to this is that, almost like clockwork, one share I'm closely watching rises on open and then freefalls from about midday, so my paper intraday trading on it looks sound at least short-term. Yeah - will continue to paper trade this for a while before committing any $, as I'm generally happy having cash on the table rather than in the market at the moment. At the moment, I guess you're right in that it's hard to pick big swings either way with a lot of aussie stocks. If things go into a stronger bear towards the end of the year, though, this is a strategy I want to be on top of.

CanOz said:

Its all outlined on their web site, but no. The only worry i have is if the bank where my account is held were to become insolvent. But if Citi-bank goes belly up i think we're all in trouble at that stage.

Cheers,

CanOz

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They certainly have some impressive figures. Just in case you're reading this thread still, and in case it's of use to others - I'm arranging the wire transfer of USD 10k to get me set up. How easy have you found them to transfer securities across to? Once I'm set up, I want to have my portfolio all in one place. I'm assuming it's pretty straight forward?

Aussiest said:

Btw, i am curious. Why would anyone want to trade U.S. stocks, when there are enough here? Are they more volatile?

Click to expand...

One reason, liquidity. But honestly once you trade US stocks, it will change your opinion of trading ASX stocks. The ASX is a great market when the liquidity is there, but i've been burnt too many times with excessive slippage in less liquid markets.

Cheers,


CanOZ

CanOz said:

One reason, liquidity. But honestly once you trade US stocks, it will change your opinion of trading ASX stocks. The ASX is a great market when the liquidity is there, but i've been burnt too many times with excessive slippage in less liquid markets.

Cheers,


CanOZ

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Another reason, $1.00 commision.If you trade regularly this makes a big impact on results.

If you want to short ASX stocks you will need another broker i.m.o.US stocks are more liquid as Can says, plus you have thousands of shortable stocks.

Porper said:

Another reason, $1.00 commision.If you trade regularly this makes a big impact on results.

If you want to short ASX stocks you will need another broker i.m.o.US stocks are more liquid as Can says, plus you have thousands of shortable stocks.

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Hmm, that would require another 3-6 months of research imo. Except if you have market scanning software i guess.

I am familiar with some of the U.S. stocks, from staying up late and looking at the NASDAQ website. But as far as trading them, i wouldn't be able to do that until i had mastered trading the ASX. When do you ever 'master' trading, but what i mean is, when i have my strategies and trading plan in place.

Another thing, if you are based in Australia, i don't see the point in having an international broker.

Click to expand...

As the other guys point out higher liquidity, 14,000 stocks that can be shorted and more importantly you can take positions that are not or less likely to be correlated. And seriously cheaper brokerage.

I think IB is a good choice simply because you can preset all your orders regardless which market you trade and for anyone starting Oz market maybe less confusing and 120 odd stocks is enough to work out a trading strategy

Aussiest have posted a couple of weekly charts, 1st one XMJ and 2nd XFJ

Its not a trick question but on which chart would you expect to find more short opportunities then look at the NCM chart again.

Yes, you must work out how you are going to trade first.

What was your setup for (thinking about) shorting NCM this morning?
Are trading with the trend or against it?
Was there any clear support/resistance for you to use?
Did you have any confirmation of your thinking from any indicators?
Was there any evidence that the sellers were getting the upper hand?

You should be prepared to learn from the setups that fail. What can do you better the next time?

Ifocus,

I'm not sure whether you mean in hindsight, or to predict which i would short now, so i will go with the latter:

XMJ:

Looks like it's been on an uptrend for a number of years. The green and blue lines haven't crossed yet, and i am sure when they do, it would be a bearish signal. Which would indicate that some / alot of traders would sell.

The most recent candle is a slightly 'bullish' sign, however, i wouldn't place much confidence in it returning to previous highs. The candle has also fallen slightly below support, which may mean the share would stay in a side-ways movement for some time, until a definate direction could be established, or that it will trend downwards.

The double high (is that the term?) indicates some uncertainty amongst buyers and sellers as to the future direction of the share.

Trading volume has been relatively high(ish), which would suggest it is close to being over-sold.

The chart actually looks a bit like WPL's chart and we all know the market rejected anything substantial above $65.00.

Without knowing too much about the fundamentals, i guess i would have to say, it is due for a downturn and if i was more experienced (and could analyse the chart better), i would put in a short sell order at around the $15.00 mark.

XFJ:

Has already experienced a significant down trend. By trend analysis alone, i would say it is heading for support and that it wouldn't be a good idea to short it. Maybe some day shorting, but it looks like it's had it's run, or slide, i should say.

That inverted hammer at the end of the chart may suggest you'd take out a short near close, with the hope the price would slip down a bit further on opening.

But, for any long term shorting on XFJ, i'd be too scared.

I really don't know enough about charts to confidently short a stock at the moment. It would be gambling.

Now, for the NCM chart.

My rationale behind shorting it today was that the market might be a bit flat, that many people would short it in the real market, so i could take out a CFD and make a small profit.

The price of Gold also declined a bit on Friday night, so i thought this may add slightly neg. sentiment to the share.

Overall though (over next few days to week), i think NCM may do okay. It has been slowly advancing in price over the last few days and the price of gold may go up if the AUD continues to weaken.

It'll be interesting to see what will happen.

IFocus: i'd just like to say a big THANKS. Doing this exercise has made me realise i need to read a detailed, hardcore charting book.

I am going to make a study plan, starting now.

peter2 said:

Yes, you must work out how you are going to trade first.

What was your setup for (thinking about) shorting NCM this morning?
Are trading with the trend or against it?
Was there any clear support/resistance for you to use?
Did you have any confirmation of your thinking from any indicators?
Was there any evidence that the sellers were getting the upper hand?

You should be prepared to learn from the setups that fail. What can do you better the next time?

Click to expand...

Peter,

Please see comments above. I really appreciate your comments. Reading them (along with what IFocus got me to do), has made me realise WITHOUT DOUBT, that i need to take a more structured approach to share trading, especially going short (if i do) and to really learn about charting techniques.

There is a long road ahead...

Aussiest the point I hoped to make is in a up trend go long in a down trend go short.

When I look at the NCM chart all I can see is its ranging and grinding away a 1 sec look and the message in my head is toooo hard there are way better opportunities.

CEU in hind sight was a great short, falling like a rock but a steady rock all you needed is a place to get on, now look at NCM scramble eggs.

The two lines on my charts are moving averages a 20ma and 50ma I put them on my charts years ago to filter my trades to taking long trades when they are going up and shorts when they are going down, they also provide other information but nothing to do with the actual entry method.

By doing this alone will reduce the trades you take and at least help keep you on the right side of the market.

Hope this helps or food for though

.

I'd just also like to thank Ifocus, Aussiest and everyone else for adding to this thread. Very, very interesting.