$THLD "Shorting momentum stocks" | Bulls on Wall Street

$THLD "Shorting momentum stocks"

Threshold pharmaceuticals has certainly tested the threshold of my pain levels recently. 🙂 However in the midst of losing money on this short today, I actually learned alot about shorting momentum stocks from my mistakes. So for all you daytraders out there, here is a tip for shorting intraday runners.  The number one rule about trading any stock is to wait and make sure you have a setup. Well the exact same principle applies when shorting momentum stocks, I just failed to do that today. Instead, I blindly went in $THLD and got my face ripped for 40 cents.  But, the important thing is that I learned from this mistake and am now going to share it with you.. so here is what I found:

When shorting a momentum stock, I have found that the best short opportunities come late day around 1 pm.  Just like we look for intraday breaks and end of day runners for longs around this time, we can also look for parabolic shorts on the intraday charts.  When you find a “holy grail” intraday chart, meaning the stock has established an uptrend all day, then you wait for the trend to break towards the late afternoon and thats where you hammer the short. The most common short that I have observed to be working is the intraday break of the 20dma after the stock has been riding it up all day. Just an observation of the past few days, that I thought I would share. Pretty simple and basic observation, but makes for big money and I like that combination! Heres an example of my mistake today, and where I should have actually taken the short instead.

I shorted the stock here in the morning 5.3 or so.. my initial thought process was: the stock closed really weak yesterday and now should move green to red after this morning bounce.. well i was stubborn and didn’t wait for the stock to move red and instead shorted early thinking I could catch a few extra gains. Wrong.. ended up stopping out for 40 cent loss..

 

The way this stock should have actually been traded: Short the stock if indeed it had broken that 5 level and gone red or wait for 1pm and short when the 20dma trend broke right here at 5.93 and taken the 30 cents out of the short..

 

 

4 thoughts on “$THLD "Shorting momentum stocks"”

  1. Hi MB,

    I’ve been working on adding parabolic shorts to my list of setups. Personally, I’ve found that entering on a break of a flag tends to work out for me. For example, a stock would run up in the morning, consolidate in a flag pattern, but then instead of breaking out to the upside, it breaks to the downside on the flag. That’s when I take the short. This is what happened today on MHR. Looked overextended on dailies, then I took the intraday flag breakout to the downside at $7.57 at 11:30 AM. A similar setup happened on FREE on Feb 21 on Monday. Actually there were two opportunities for me on FREE. First one happened on early open when it dropped, consolidated, and then broke the flag. Second one happened at around 2:20 when it broke down from a much longer consolidation. Would love to hear your thoughts/feedback. As always, thanks for sharing your insights!

  2. How about going long with a company that you believe in instead of playing the technical analysis game? I have found the former to be far more rewarding – ignore the noise and get the preferential tax treatment through robust due diligence instead of a graph that completely discounts the long term potential of a given company, I played the TA game for awhile, but found far more benefit by investing in companies, particularly in the biotech space, that could potentially drive huge gains by fulfilling unmet needs in the marketplace. Just sayin’

    • HI MB,
      I learned my leasson too. Volume a lot of times confirms end of trend. You were right on the downtrend but there was no spike on volume.

      Mr. Chomo, Technical Analysis is price action…(that’s the only thing that pays).

  3. I don’t think your play was as terrible as it could have been. I would have probably fallen for that one too because of the two big red candles. The only thing I would have waited for would have been a break of the 20sma The fact that the price on the 2nd red candle bounced off the 20sma would have bothered me. As the three dojis next to it formed, it seems like that should have been your cue. A break below the low of the dojis and that last red candle would have also taken it below the 20sma, so on big volume it could have been hugely profitable. Also then you have an easy stop point at the break of the consolidation to the upside, only a few pennies higher than your short. That way you have a rock solid cue to get out, and if you were feeling frisky could even have pushed it to that 3rd green candle after the dojis because that’s where it broke the high of the 2nd red candle. At that point you can also see the volume ramping up significantly and it’s pretty obvious you need to bail. If you were right though, that drop could have taken you potentially from $5.27 or so to $4.86. 41 cent gain for a 7-10 cent risk, I’ll take that any day 🙂

    Ahh who am I kidding? I just joined this website like 2 weeks ago. You should be giving ME lessons! 🙂

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