XJO overbought - Will going short work?

[seaurchin]

Re: 8-9% rise in XJO index can this be overbought ?

visiting XJO 4300s again ...sept puts 4300 today look good.
we may not go too wrong on this ..to me I see buying calls more at risk so i hedged again aginst my shares..which have all risen quite well last week.
someprofits taken as well .
got in on float CMV...cma corp ..up some 50% in days !better leverage than oppies....just kidding ...strong debut on listing good company.
may pull back ...wait see now..with index...to..cheers

 

[Martina]

Re: 8-9% rise in XJO index can this be overbought ?

....For instance If tech shorted those multibagger trades, the profit would *always* be less than 100% (unleveraged) whereas long trades can bag 200, 500 1000%

This mean the risk reward is not worth it....simple mathematics...

Correct my Maths......
If going short, sell at $8.00, buy back at $1.00, Is that not 800% profit?
It's the same as buying at $1 and selling at $8 going long is it not?

 

[mit]

Re: 8-9% rise in XJO index can this be overbought ?

I think this is more the point

Short 1000 shares at 10 dollars. Maximum profit $10,000 if they go to zero.
Buy 1000 shares at 10 dollars. Shares go to $infinity you have made infinity dollars.

If you had $8000 to spend:

1000 shares at $8 = $8000 Sell at $1 make $7000
8000 shares at $1 = $8000 sell at $8 make $64000

This is illustrative only as I think you are required to only front up with a deposit when shorting shares. Although for CFD's it certainly would be true as the margin is the same in either direction (ignoring interest differentials).


MIT

 

[Martina]

Re: 8-9% rise in XJO index can this be overbought ?

Now we have cleared up the furphy re “....the profit would *always* be less than 100%…....simple mathematics...”.Here’s the next one:

“....Buy 1000 shares at 10 dollars. Shares go to $infinity you have made infinity dollars...”

Theoretical mumbo jumbo.

If you only trade long and I only trade short I will possibly make more money than you do quicker.
Why? Because shares going long move slower than shares going short.

My profits can also be infinity, who says I only can trade 1 stock?
Your shares going to infinity will not happen. 99 % of traders are buying and selling constantly from one to another. If long traders can and do, why not the short trader?

Just thought to clear up some myths before everyone starts believing them

 

[DTM]

Re: 8-9% rise in XJO index can this be overbought ?

Well it could be time to see who's right, the long johns or the short skirts...

 

[GreatPig]

Re: 8-9% rise in XJO index can this be overbought ?

sell at $8.00, buy back at $1.00, Is that not 800% profit?

Actually, no: it's 700%

Your initial capital doesn't count as profit.

Cheers,
GP

 

[GreatPig]

Re: 8-9% rise in XJO index can this be overbought ?

If you had $8000 to spend:

1000 shares at $8 = $8000 Sell at $1 make $7000

But when you short at $8, you receive $8 per share, not spend it. Ultimately you only spend $1000, which means to be comparable to the long position, you could have bought 8000 shares ($8000 spent and $64000 received in both cases).

Transaction costs and loan interest are a separate issue, which may make shorting more expensive.

GP

 

[DTM]

Re: 8-9% rise in XJO index can this be overbought ?

Transaction costs and loan interest are a separate issue, which may make shorting more expensive.

GP

That's happened to a friend of mine too. He caught a nice down movement about 30 cents with 2000 shares and didn't end up with any money because the costs involved ate up his profits.

 

[wayneL]

Re: 8-9% rise in XJO index can this be overbought ?

Now we have cleared up the furphy re “....the profit would *always* be less than 100%…....simple mathematics...”.Here’s the next one:

“....Buy 1000 shares at 10 dollars. Shares go to $infinity you have made infinity dollars...”

Theoretical mumbo jumbo.

If you only trade long and I only trade short I will possibly make more money than you do quicker.
Why? Because shares going long move slower than shares going short.

If you weren't so rude I would go to the trouble of correcting your misconceptions, but now I'm not so bothered.

Furphy indeed! :321:

 

[wayneL]

Re: 8-9% rise in XJO index can this be overbought ?

For the benefit of the other posters here who are far more polite, lets have a look at what I said and in what context. It seems some of the posts were deleted which makes my post lose a bit of context.

Trading short only works well with short term methods.

So shorting is good for short term methods. No disagreement here. My method is short term so I short often and aggresively.

Longish term, trend trading methods are no good for shorting.

My comments were specifically in reference to Tech/A's system which is a long term trend following system. I stand steadfastly by my above comment that shorting with this type of sytem is not so successful.

For instance If tech shorted those multibagger trades, the profit would *always* be less than 100% (unleveraged) whereas long trades can bag 200, 500 1000%

Tech's system has a low win/loss ratio but a high risk/reward ratio. This means that extraordinary profits in this system rely on some of the results being at the far right hand side of the bell curve. In other words these are the multibagger outlyers such as UTB and CTX.

There is nothing wrong with that, it's just how it works.

The thing to remember with bell curves as they relate to trading is that they are semi-logarithmic. There are no outlyers on the left hand side of the bell curve because we run into ZERO. We cannot make a profit on shorts past this number...no matter how fast or slow it gets there.

One admission. I included the word unleveraged in my above statement which can be misleading. Why? Because when we short sell we only have to put up a margin amount. This means that shorts are always leveraged and returns in excess of 100% are possible on our capital outlay.

Lets go through the numbers one more time. This time using actual leveraged returns.

I wrote:

Example:

Lets say XYZ wnt from $1 all the way to $10 and then collapsed all the way back to $1 again

Trader A goes long @ $1 and clairvoiantly sells at the exect top of $10. He has made 900%

Trader A phones his mate Trader B and tells him that XYZ is buggered and has sold.

Trader B thinks its a good short and does exactly that, he shorts XYZ @ $10. Blessed with the same forsight as Trader A, Trader B covers at the exact bottom....$1

Both traders have traded a $9 move in exactly the same stock. The long trade netts 900% yet the short trade only 90%.

But to short stocks you need to have a margin account. (I'm using US rules here, don't know if the same for ASX)

Now the margin rule are that initial margin is 50% of the position size, whether going long or short.

Lets suppose both trader a and trader b use a $10000 position size.

trader a buys 10,000 shares @ $1 and puts up $5000 margin. When he sells at $10, the proceeds from the sale are $100,000. This is $95,000 profit which is 1,900%

trader b shorts 1000 shares @ $10 and puts up the same, $5,000 margin. However, when he covers, the profit returned to his account is $9,000 which is only 180%

Once again I point out that both traders have traded a $9 move in the stock. Additionally, both traders have put up $5,000 margin. Which trade would you prefer????!!!!

Just to emphasize, this pertains only to long term trades. If you are trading 5%- 20% swings, (like I do) it does not matter a jot whether you go short or long.

Furpy Indeed!!!

Cheers

 

[RichKid]

Re: 8-9% rise in XJO index can this be overbought ?

It seems some of the posts were deleted which makes my post lose a bit of context.

Wayne,
Were those recent posts? If it was a post by a poster which was edited within the editing time then we can't get em back. I haven't deleted any posts in this thread myself and I doubt Joe did either. Anyway, you've provided an excellent explanation so those posts may not be missed.

 

[wayneL]

Re: 8-9% rise in XJO index can this be overbought ?

Wayne,
Were those recent posts? If it was a post by a poster which was edited within the editing time then we can't get em back. I haven't deleted any posts in this thread myself and I doubt Joe did either. Anyway, you've provided an excellent explanation so those posts may not be missed.

Hey RK

I thought my first post on shorting was in response to some discussion between Tech/a and batmann which isn't there anymore.

However it is quite possible that I have become confused...probable even!

 

[Joe Blow]

Re: 8-9% rise in XJO index can this be overbought ?

I thought my first post on shorting was in response to some discussion between Tech/a and batmann which isn't there anymore.

However it is quite possible that I have become confused...probable even!

I'm pretty certain I haven't deleted any posts from this thread.

Maybe you're thinking of another thread?

 

[wayneL]

Re: 8-9% rise in XJO index can this be overbought ?

I'm pretty certain I haven't deleted any posts from this thread.

Maybe you're thinking of another thread?

That must be it Joe, sorry for my confusion. Its been happening ever since I stopped drinking.

 

[RichKid]

Re: XJO overbought- Will going short work?

That must be it Joe, sorry for my confusion. Its been happening ever since I stopped drinking.

Maybe it's time to start again!?

Nah, just kidding- I think there is another thread where you have discussed shorting. If I find it I will see if I can link it here or do something to tidy things up. Thanks for mentioning the possibility of missing threads, it's generally easy to fix things up if it's brought to our attention.

...okay here is the thread I referred to where Wayne discussed shorting previously: https://www.aussiestockforums.com/forums/showthread.php?t=1218&highlight=short+selling+stocks

I will change the title of the current thread to better reflect the discussion, I did think of merging the threads to one general thread on shorting but decided against it unless there are suggestions to the contrary.

 

[wayneL]

Re: XJO overbought- Will going short work?

Maybe it's time to start again!?

Well, been playing with amibroker. Now that kaveman has sorted my chandelier problem, I've been toying around backtesting some longer term trend following systems again. That is definately cause for a few soothing ales...but I digress.

The above discussion had be backtesting my system on the short side, just to convince myself once again. No matter how I fiddle with the parameters, I simply can't make it profitable on a portfolio wide basis, whereas the longside just s**ts it in.

Once again it is those outlyers...the few multibagger trades that push the system into acceptable profitability, the very outlyers that are impossible on the shortside because that bloody zero keeps getting in the way.

Out of interest, I would be keen to see if anyone can make a medium/long term trend following system as profitable on the short side as the long side, on a portfolio wide basis. I contend that it is not possible.

cheers

 

[Milk Man]

Re: 8-9% rise in XJO index can this be overbought ?

That must be it Joe, sorry for my confusion. Its been happening ever since I stopped drinking.

I had to stop binge drinking because of stomach ulcers (and im 22!). I must say though that i've never felt better- now that is. The first few weeks I was worse than when I tried to quit smoking! I only used to get drunk once or twice a week so I can imagine someone with a real drinking problem quiting (dunno if you did or not) - they reckon it can kill you!

Sorry to go off topic.

So you don't reckon a medium term shorting system will work on a portfolio eh? That sounds like a challenge! I might work out a long side on the systems development thread then get back to you on that. I can make them work in the backtester- just give it crystal ball syndrome! I nearly fell off my chair when a system I tested returned 1300%

:drink: :drink: :drink: HAHAHA