We only short stocks that are in sectors that are not in the current economic cycle phase, and are also not performing.
The stock is below both of it’s moving averages (50 & 200) or is breaking through it’s moving averages.
There is negative sentiment surrounding the stock.
You always have a stop – otherwise you could end up taking never-ending losses.
You have a risk to reward ratio of at least 1:3.
You adhere to correct money management.
The Fundamental Rules
Ideally the stock would have :
Negative current assets
Decreasing revenues
Operating margins of less than 10%
Confirming indicators
Ideally the stock would not :
Have a high PE – as there could be a good reason why and it may move higher.
Be a thinly traded small cap stock – as these can be easily run up in value.
The markets have been less predictable
Current volatility requires more focus on :
Price action of the stock
Setups (Reverse power plays, descending triangles, double tops etc.)
Market direction
News
Oil
With the market failing to find any longer term direction you need to be able to trade long and short.
This entry was posted
on July 26, 2006 at 2:40 pm. You can follow any responses to this entry through the RSS 2.0 feed.
You can leave a response, or trackback from your own site.
