Registered User
Joined: 3/14/2005
Posts: 20
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I have a question for people who have any experience with trading against the trend (known as fading?). Specifically, this is about shorting stocks that have gone up really high, really fast and are experiencing very harsh corrections.
In the past few days, stocks like TIE, ERS, RES,PCU, GLG, GG, etc (ie, stocks that have been on a tear during the past month or two) have dropped a lot. ERS, for example, has corrected over 50% in less than 10 trading days. I have read that it is dangerous to catch a falling knife, in other words, it is difficult to buy a stock that has dropped very quickly on hopes to catch it on a rebound. My question is this: is the reverse true? Is it possible to short stocks (and properly time it) that have moved up quickly to short them on their inevitable correction downwards?
I have read that trading against the trend is one of the most difficult types of trading there is. My question is does anybody have any experience doing this successfully, and is it possible to time these correctly and catch quick down movements?
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Registered User
Joined: 12/8/2004
Posts: 1,301
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If there is a successful way of trading against the trend it is a secret being held close to the vest.
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 Gold Customer
Joined: 4/10/2006
Posts: 954
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TIE
I am attempting to call the numbers on this one. But, I covered today. Just watching for now.
I have noticed on some of these stocks that have a large% insider owner ship if you find them pulling back hard it is usually after doubling.
TIE all I have done is watch this stock go up
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Gold Customer
Joined: 4/10/2006
Posts: 954
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MY W.A.G. for tomorrow
Look for TIE and WIRE to trade higher tomorrow...Hope they open Lower....
TIE open 68 trade towards 81-83 by 1:00
WIRE open 37- 36. trade up towards 42-44
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Gold Customer
Joined: 4/10/2006
Posts: 954
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Trading these movements are best fit for FIBO. numbers rather than Moving averages. You have to first Identify the Likely pivot points, find the resistence for the pull backs and then say a few prayers, many times you will get a 1-2day burst near the double point sometimes before the double and sometimes above it.
I think TIE tipped out at 95-96...I have the major base around 44.
At 83 TIE made its big move in a two day move, the second day had an exhaustion look which could be an indicator to a down move...we had help with other parts of the market turning over.
I could pick support at 79, 73, and 68
Well that is my read.
good luck. it is subjective and highly subseptible to other market conditions. but these are big moves, like catching a wave.
TIE ...77 is probably a more reasonable guess.
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Registered User
Joined: 11/1/2005
Posts: 240
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a trader would have a chance looking at the interday charts, and selling on the rallies or buying reactions. there are books on the effort. some claim when the move is over, along with selling long position, place the short orders. when the shorts are bought back, buy long. I'd like to meet that fella.
you would have to have a price objective on the down side, when its reached sell and buy the other direction. it looks easy in a book. :)s
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Gold Customer
Joined: 4/10/2006
Posts: 954
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Agree whole heartedly. I have made some lucky calls recently...must be like batting averages. .350 would be a great success rate..yet probably would be losing money, unless you had some base runners. Interesting analogy. It's those damn slumps that kill you.
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Registered User
Joined: 10/7/2004
Posts: 2,126
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QUOTE (tzink7) I have a question for people who have any experience with trading against the trend (known as fading?).
Please lets not get some folks here anymore confused that they may be already. FADING is not trading against the trend. FADING occurs simply when a stock move inversely with the futures. If a stock sell off while its futures are rising that is known as such a stock is fading.
I supposed what you meant is contrarian trading.
You can always short in a bull market, and viceversa. The fact is that in any given cycle 1/3 of stocks are going in the oposite direction that of the market in general. As many times mentioned in this forum and I believe by the Worden's themselve - this is a market of stocks.
You can do such a thing with no problem as far as the concept go. Doing it is easier said than done, just as anything in the market. You must realize that it is a much powerful concept when a stock is rising, than when it is dropping. You must also consider the risk/reward implied by going short in a stock. And if you are implying to catch tops or bottoms (that is a game for loosers).
If you have the experience, the tools, and what it takes to be a trader, you can do what you are asking, as well as the opposite. In fact that is the key to sucess in investing, trading, or daytrading(mostly here), the ability to time. We get pay to see trasparency in the markets before the big crowd does, and to take opportunity of that window in which you must risk. When the crowd comes to risk, you will be taking rewards.
good luck
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Gold Customer
Joined: 4/10/2006
Posts: 954
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I am going to stop posting...BigBlock makes me feel quite inadequate.
Thanks for the explanation. My sophistication is equivalent to a guppy.
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Gold Customer
Joined: 4/10/2006
Posts: 954
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Wish we could have a better communication tool.
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Registered User
Joined: 1/28/2005
Posts: 6,049
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It seems much more logical to trade with the trend then against it.
Why deal with excessive volatility and falling knifes?
Remember the stocks that are correcting sharply have had very strong
runs. By definition sharp reversals give no warning.
Your best bet is to try and catch trends as they develop. Then ride
them as far as they go.
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Registered User
Joined: 3/14/2005
Posts: 20
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I went ahead and made a watchlist of 15 stocks last week, made up of high-flying stocks that I thought were crashing. All of them are down since then, I think I could have made money off of it.
I'm testing my theory about catching the bullet train down on these high-flyers. Maybe I'll figure out a way to time these things properly, or at the very least, catch really obvious down moves.
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Registered User
Joined: 1/28/2005
Posts: 6,049
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tzink7
Remember that general market conditions will impact any trading
system.
We have just been through a bear period the last few days. This will make any
system looking for "down" stocks seem more successful.
In general terms bull markets make buy systems seem better and bear markets make sell systems seem better.
I'm sure in the last few years of the 1990s people thought they had found the holy grail in tech stocks.
Reality struck in 2000-2003 when these high fliers were crushed.
Always consider market conditions with your trading system.
Thanks
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Registered User
Joined: 10/7/2004
Posts: 264
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Tzink7,
I'll give you some ideas to look at. Look for stocks making 52 week highs. Then look for those which have formed a "double top" type of formation. In other words the current high took out a recent high with a little up/down activity in between. Then look for a divergence with RSI, TSV etc. -- it makes a lower high. When price closes below the previous high (not the current 52 week high), you may have something.
Note, this is someting I am currently looking at. I am not yet trading it. Please do your own due diligence. Good luck.
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