Day Short Selling vs. M/Term Short Selling

[Aussiest]

Hi to anyone that's game enough to read this thread :

Now, i've just been thinking, and this is from a relative noob only:

What do you think are the differences in risk between day short selling and medium term short selling? By 'medium term', i mean anything from overnight to a few weeks.

It just occured to me the other day that day short selling is highly risky. You would have to set strict and minimal stop-losses. Am i wrong here?

The obvious or 'most logical' strategy (and, we all know the markets are not 'logical', so please don't correct me) would be to wait until a stock reaches resistance and then activate your short sell, with the intention of holding it for a few days or a week or two.

Eg. (this is for example purposes only), NCM reaches 32.50. Set buy point at this price (which is actually the 'sell' point), but wait to see what's happening in market. For example, if all other indicators point to gold not being bullish, it might be a risk worth taking?!

What i am trying to say is that it might be a better strategy to wait until you think a stock has reached it's resistence level after a rally (but, you would have to evaluate that rally), and then short sell for more than just one day.

What do you think?

Day short selling versus meduim-term short selling?

Disclaimer: this is purely an opinion / theory-based question. I am not asking you to reveal your strategy, or recommend or deter me from buying NCM. That was purely used as an example

Martine

 

[Aussiest]

I guess it was a hard question. Lol.

(And no, it was not represented in the search function. Lol).

Aussiest.

 

[Wysiwyg]

I guess it was a hard question. Lol.

(And no, it was not represented in the search function. Lol).

Aussiest.

Hi, the cost of carry, exempli gratia - interest on margin or dividends, is a deciding factor here I would think.Another decisive factor of going short longer term is the sudden changes that are possible when markets open.

 

[Aussiest]

Another decisive factor of going short longer term is the sudden changes that are possible when markets open.

Yeah, thanks Wysiwyg... you've just reminded me.

I guess you would have to be really sure it was going to go down in order to ride through the possible jumps up at open.

 

[peter2]

I am not sure what your question was.
Are you asking which timeframe is better (needs defining) for shorting?

You can never be sure of anything until it is over.

Every trading strategy needs a setup, an entry trigger, a stop loss and an exit strategy.

 

[Aussiest]

I am not sure what your question was.
Are you asking which timeframe is better (needs defining) for shorting?

Yes, i was referring to timeframe, my reasoning being that imo, day short selling seems more risky. For example, if i was going to day short sell CBA, i would want to have a tighter stop loss in place than if i planned to hold it for a week or so. If my stop loss was hit, but the price reversed back down, i wouldn't know whether to buy (sell) into it again - i guess that's what you meant about entry and exit rules.

Hmm, okay. I'm getting it now.

 

[IFocus]

What do you think are the differences in risk between day short selling and medium term short selling?

There has been some good threads on money management defining risk try a search.

The risk I think you are talking about is meeting Mr Train. stock moves 30% against you due to take over, good news etc.

If you spend long enough in the market this will happen to you, you may be a little less exposed on a intra day basis but don't count on it totally, trading halts are common.

This means position size so you can cop a 30% to %50 loss on one position and still get up next morning and keep trading.

You would have to set strict and minimal stop-losses. Am i wrong here?

Trading without stops makes you a punter you will joint the scrap heap sooner.

The obvious or 'most logical' strategy (and, we all know the markets are not 'logical', so please don't correct me) would be to wait until a stock reaches resistance and then activate your short sell, with the intention of holding it for a few days or a week or two.

Develop a trading method then testing it to death so you understand why it works and when it will stop working this is paramount.

Eg. (this is for example purposes only), NCM reaches 32.50. Set buy point at this price (which is actually the 'sell' point), but wait to see what's happening in market. For example, if all other indicators point to gold not being bullish, it might be a risk worth taking?!

What i am trying to say is that it might be a better strategy to wait until you think a stock has reached it's resistence level after a rally (but, you would have to evaluate that rally), and then short sell for more than just one day.

see above comment

 

[blablabla]

What do you think are the differences in risk between day short selling and medium term short selling? By 'medium term', i mean anything from overnight to a few weeks.

It just occured to me the other day that day short selling is highly risky. You would have to set strict and minimal stop-losses. Am i wrong here?

It's good to see a thread about shortselling that does not have an agenda about shortselling being evil.

Here is a link to an interesting article that describes a shortseller who recently got it wrong bigtime. The losses would definitely have been lower if it had been a day trade! The longer you go against the trend the more you will lose, short or long.
http://www.kitco.com/ind/Akerman/aug012008.html