3SOF

OneStockMind, many have asked about "shorting a stock" and I started my "continued learning."  Here's an article that explains "shorting"

http://biz.yahoo.com/opt/051017/696f9c7a3ccc7b633e572112f6f9db08.html


"BACK TO BASICS: The Stock Shorting Process Explained, Jeff Neal
Monday October 17, 1:30 pm ET

Shorting stock! "What you talkin' 'bout, Willis?" A valid questions indeed, especially about a strategy that has unlimited risk. But many traders/investors really do not understand the process, and, like most market positions, this type of strategy can be implemented with relatively low risk when employing options. By shorting stock, traders have the ability to take advantage of a declining market by selling or shorting shares of stock.

The trader's objective when shorting stock is to sell the stock first, and then hope it will decline in value so that it can be repurchased at a lower price. Of course, the profit or loss would be determined by the difference between the selling price and the purchase price. Before this process can take place the trader must first borrow the shares from their broker. In some cases, it might not be possible to find the stock. This is especially true of less liquid or less actively traded shares.   

To find the stock shares to lend, typically a broker will look in four places. The first will be from other customers who are long the stock in their margin accounts. If that does not work the broker will look in three other places, which include its own inventory, securities borrowed from another brokerage firm and/or securities borrowed from institutional investors. If the broker comes up empty after exploring all of these options, then the short seller will not be able to borrow and short that particular issue.

If a trader is able to short a particular stock then they will profit if the stock price declines. However, it is important for the short seller to know that if any dividends are paid by the stock, then the lender, not the short seller, is entitled to them. The person holding an open short position must pay the amount of the dividend to the lender. Another important point is that the lender retains the right to demand that the stock be returned to them at any time. This is certainly one of the major risks of short selling since the lender may demand that the shares be returned before the stock has made its move downward. In addition, if the stock surges to the upside, the short seller is exposed to unlimited risk and potential margin calls.

A far better way to accomplish the same type of objective is to just purchase a straight put or implement a bear call spread position. This is much better than actually short selling stock because you have limited risk versus unlimited risk and you can still profit from a decline in the stock price. In addition, the trader is not subject to any unwanted margin calls should the position go against them. Ideally, a put could be purchased when either the options on the stock are experiencing low implied volatility and are cheap; and a bear call spread constructed for a credit when the underlying is showing high implied volatility and are ex! pensive. Either way these two methods have a much better overall risk-to-reward ratio versus the short selling of stock.

Happy Trading."

NVAX percentage back up to 8.24% on Merrill Lynch Nanotech Index - NNZ!

http://www.amex.com/?href=/othProd/prodInf/OpPiIndComp.jsp?Product_Symbol=NNZ

Quote from: LiveLife on November 15, 2005, 12:00:28 AM
I noticed this morning that TIII had a significant gain with "acceptable" volume level in comparison to other stocks (20-40 stocks) and I made a decision to buy.

Hi LL,

What would you consider as an acceptable trading volume? as in comparison to what? (e.g. above average trading volume, etc)?

Quote from: LiveLife on November 15, 2005, 09:03:36 AM
I am a short-term swing trader and I do take profits on "significant" gains, only to buy back on dip/pullback more shares, and so on, to end up with more shares at the final "sell" of the stock.

What is your definiton of an acceptable gain in comparison to the purchase price and do you do trailing stop loss when you are gaining?

Thanks again for your help LL, sorry for the many questions but I am very anxious to learn.

Wayne

rurouni, I welcome the questions.  That's why this MB thread was created, to learn and practice what we learn, as newbies to stock trading and traders wanting to be more effective.  ( I am still a newbie from this July, and still on "learning mode."  Heck, I don't even know how to short or option trade!) 

Quote from: rurouni on November 15, 2005, 11:44:58 PM
What would you consider as an acceptable trading volume? as in comparison to what? (e.g. above average trading volume, etc)?

I trade in 5,000 - 10,000+ share blocks and I must buy stocks with big enough volume.  Otherwise, I won't be able to buy all the shares I need or can't sell when I need to take profit.  I generally look for stock with 1-2+ million shares/day, more the better (I noticed that high volume stocks tend to also have more volatility for gain/loss).  TIII traded 1.5 million shares compared to 17 million shares NVAX traded.

Quote from: rurouni on November 15, 2005, 11:44:58 PM
What is your definiton of an acceptable gain in comparison to the purchase price and do you do trailing stop loss when you are gaining?

You MUST have a sell target before and especially immediately after you buy (Thanks David and other 3SOF supporters that "pounded" this discipline into my head!  ).

Since I bought 10K+ shares of TIII, a $0.10 gain equals $1,300+ and "acceptable gain" for me.  $0.20 - $0.30 gain of NVAX equals about $3,000 - $4,000+ in gain and "more than acceptable" gain for profit taking.  Of course, I will watch NVAX closely at market open for any "gap up" or significant gain and sell as NVAX gains.  It's better to take smaller gains than take losses.

I use trailing stop sell order(with 5% loss) for stocks that I am not "certain" where the intraday high will go to (I work at a full-time day job and can't daytrade - I am thinking about asking for flex, 3/4 or 1/2 time work schedule tomorrow so I can daytrade from market open to noon PST).  For more familiar stocks, I use limit stop sell orders to maximize on any spiking gains and to minimize loss in case stock drops intraday.

Good morning!

= update = Since I am swing trading, I must take profit on any significant gain.  My new sell target would be $3.40 - $3.60 this morning after yesterday's buy in at $3.18 - $3.26, unless market opens with a gap up (bid/ask is currently $3.70's), then I will look for higher sell target.  I will watch the market open closely for early morning profit taking or spiking gains.  And buy back if rebound continues, if not, then onto the next stock on the 20-40 list (I am curious to see what will happen to CPST after deal with Walmart).

Since this MB thread is primarily for "swing trading," I posted key slides from Nov 7th conference presentation with CEO/President and Chairman of the Board at the NVAX MB: (4th post from top)

http://www.3stocksonfire.org/trading/index.php?topic=2478.new#new

I resumed my "knowledge base" postings at the Knowledge Center MB here:
http://www.3stocksonfire.org/trading/index.php?topic=3633.0

Nice jump this morning at market open!     

= 0720 PST = If you look at the Scottrade streaming quote chart, red ovals represent good sell points (always good to sell as the stock rises).  The blue oval represent a good buy back point.  (Yes, I took profit at $3.83 - $3.85 but bought back at $3.88 - $3.90 when I saw a second spiking gain - so I thought.  )  I was anticipating for the early morning profit taking, and wasn't sure if that small drop was it.  Any way, now I wait for the next sell target around $4!  If it falls below $3.70, I will sell.

= update = I sold NVAX at $3.71 - $3.70.  On to the next swing trade!

Ok, I spent the time after I sold NVAX to "scan" for the next swing trade stock.

As I mentioned on the earlier post, I thought about buying CPST, I decided that I may do better to catch the rebound of NVAX.  I am back in at $3.67.

Looking at the Activity4 chart, I am going to "gamble" on NVAX today (I am still up from $3.18 - $3.26 right?  )

Off to work I go - I will be asking for flex, 3/4 or 1/2 time work schedule.

See you after work.

Good evening!

Well, I got my approval for flex-1/2 time work schedule so I can trade from 6:30 AM PST market open til 10:30 - 12:00 noon!

This will allow me to focus more on "swing trade" and "knowledge center" MB threads and improve my trade decisions instead of "rushing" the trade decisions because I have to get to work.

I have received a lot of emails seeking information on "how not to lose money" stock trading and what "essential basic" information is necessary for effective stock trading. 

I will be carefully reviewing the Index of Topics and post information that are "essential and functional" to basic stock trading and swing trading for "newbies"

Of course, not all trades will be positive on this "swing trade" MB thread, but that's how we gain knowledge and experience.  (Wisdom is gained from experience and experience is gained from making mistakes  )

It is my hope that this MB thread will guide new stock traders (like me) identify what/how/when stock trades make/lose money in relation to stock/market trends.

In time, we'll be more effective in our trades and hopefully "enjoyable!"

If you look at the 5 day chart, it certainly looks like a "profit taking" day today.  Looking at 3 month and 6 month chart, NVAX appears to be marching up the chart, while taking the "obligatory" pullback and price correction.  IMHO.

Good trading!

Lycos I-watch is "real time" streaming, so it won't show this morning's activity (I believe there was a sell execution early morning), but Institutional/Money Manager interest is still very much active.

I believe NVAX should pick up where we left off on Tuesday's close.

Time will tell at tomorrow's market open.

Merrill Lynch Nanotech Index - NNZ increased their holding percentage of NVAX up from 8.24% to 8.38%

http://www.amex.com/?href=/othProd/prodInf/OpPiIndComp.jsp?Product_Symbol=NNZ

I made a swing trading mistake, and here's my review of that mistake.

After taking profit on NVAX, I needed to be objective and non-emotional about any stock and look for "actively gaining" stocks to swing trade with.  I will admit that I thought the small rebound point (red oval) was bottom for yesterday and I didn't worry too much when I left for work (BTW, I got approval for flex-1/2 time so I can trade from market open to around 12 PST  )

After I took profit on NVAX, I "quickly" looked at many other stocks I could swing trade with and returned back to NVAX after seeing that small "rebound" - big mistake.

I received many emails last night about what should be done to effectively swing trade, since many haven't turned a profit stock trading since they started.  My initial response to emails like these is "start a stock trading log and review your mistakes, and DO NOT repeat the mistakes with future trades."  If you don't repeat what you did to lose money, then you will move towards becoming more effective stock trading.

Here are my mistakes that I MUST NOT repeat with future trades:

Mistake #1 - After taking profit on a stock, I must take "adequate" time to "properly" assess the next stock(s) to swing trade with.

Mistake #2 - For this short-term swing trading, I must remain objective and non-emotional with any stock, and not return on "hope" that rebound will spike up.

I looked at buying CDE at the same time NVAX rebounded (blue oval).  What a costly mistake of not buying CDE!

I did a quick TA on CDE and 10 MA is approaching 50 MA with RSI around 50 with MACD about to turn positive.

Daily volume is acceptable to me and although CDE has had big gains the last few days, it appears to be on a bullish run up.  I will take profit on next significant gain (I am bought in at $4.35 and will sell above $4.45 - $4.50)

Dang, this is day/swing trader's dream and/or nightmare! 

Yes, I saw the NVAX spiking rebound and quickly sold CDE and bought back NVAX at $3.49 - $3.50.

Wow, what swings!  NVAX has returned to be day traders' dream again!
If you are daytrading, there was $0.25 swing up in less than 30 minutes!

I took a timeout and decided to re-examine my 20-40 stock list and "practice what I preach"

Take a look at the TA charts for NVAX and GNBT.

Both are rebounding from significants drop in stock price with RSI very low (below 50) indicating "underbought" condition and both stocks have a lot to rebound up.

I sold enough shares of NVAX to buy 10,000 shares of GNBT.

Now I will watch.

I am continuing to check the rest of my 20-40 stock list and SANM had a nice rebound as well  (now that I have flex-1/2 work schedule, I can do more of short-term swing trade stock monitoring and post their charts here for all of us)