Dr. Steenbarger helped me recognize one of the improvements we could make at SMB awhile ago. The partners and Senior Traders must be responsible for a great deal of teaching and mentoring. But if traders are not leveraging the talent of all firm members then that firm is not offering the best learning environment. Traders learn from other traders and not just partners and senior traders.
The SMB Blog should not just be everything that Steve or GMan or Adam or I have learned. It should advocate a learning community so much more than just us. We are just four guys with four sets of learning experiences, granted some of us have been trading for a long time. But our daily community is so much larger. In the past I have asked for input from our readers. Today officially we are starting a new series to our blog where we ask for help from our trading community. We ask for your input and ideas.
I received this question from Reader Eric. SMB Blog and Reader Eric are very interested in your thoughts. Please comment. And you might also pass this question around to your trading friends and ask for their input or just start a conversation.
Hi Mike,
Hope all is well. I’ve been reviewing my stats and noticed I’ve been net positive long but a pretty big loser short. Does that mean I only go long or find ways to improve my short ability? Any and all advice is appreciated. Thanks a million.
Eric
24 Comments on “A ?4 the Trading Community- Should I Short?”
What timeframe is that sample, and what kind of shorting have you been doing? Momentum breakdown shorting has not worked well at all for the past 9 months. Shorting can still work, but you might want to change up the strat.
What timeframe is that sample, and what kind of shorting have you been doing? Momentum breakdown shorting has not worked well at all for the past 9 months. Shorting can still work, but you might want to change up the strat.
I need more information because it’s a very complicated question.
The market has been primarily moving higher over the past 15 months, which means if you were equally long and short; your results are not surprising. However, if you break the data down by whether you made or lost money on the short side on days when the market went down that will be a better indicator of whether there is a flaw in your shorting technique or if you are simply shorting at inopportune times strategy.
I would also want to know how long you’ve been trading (did you trade through the 2008 meltdown, and if so, did you make money on the short side during that?) If you are a newer trader, don’t give up on the short side because it can be very lucrative in the right market and it’s arguably half the game. If you take half the setups out of your arsenal, you will find yourself trying to buy downtrends rather than shorting just to be in on the action. I like trading short because while the moves are less frequent, they are much faster when they happen.
Bottom line, I would work on my short trading a lot (2-3 years at least) before giving up on it. If you want to trade it on much smaller size until you show some profitability, I think that makes a lot of sense.
One other thing I would add. A lot of people I know who struggle on the short side are in that position because they like to short the strongest stocks rather than the weakest because they’ve “gone too far” and are due for a pullback. They are out there shorting BIDU and AAPL and all the strong momentum stocks and getting run over. Very rarely will I short a stock in an uptrend unless it just made an obvious capitulatory move for the shorts. I like shorting stocks that can’t rally while the market is rallying because then you get the impulse wave on a breakdown when the market stops rallying. APOL, MON, FSLR are some examples of those types of stocks. Hope this helps.
Jesse
I need more information because it’s a very complicated question.
The market has been primarily moving higher over the past 15 months, which means if you were equally long and short; your results are not surprising. However, if you break the data down by whether you made or lost money on the short side on days when the market went down that will be a better indicator of whether there is a flaw in your shorting technique or if you are simply shorting at inopportune times strategy.
I would also want to know how long you’ve been trading (did you trade through the 2008 meltdown, and if so, did you make money on the short side during that?) If you are a newer trader, don’t give up on the short side because it can be very lucrative in the right market and it’s arguably half the game. If you take half the setups out of your arsenal, you will find yourself trying to buy downtrends rather than shorting just to be in on the action. I like trading short because while the moves are less frequent, they are much faster when they happen.
Bottom line, I would work on my short trading a lot (2-3 years at least) before giving up on it. If you want to trade it on much smaller size until you show some profitability, I think that makes a lot of sense.
One other thing I would add. A lot of people I know who struggle on the short side are in that position because they like to short the strongest stocks rather than the weakest because they’ve “gone too far” and are due for a pullback. They are out there shorting BIDU and AAPL and all the strong momentum stocks and getting run over. Very rarely will I short a stock in an uptrend unless it just made an obvious capitulatory move for the shorts. I like shorting stocks that can’t rally while the market is rallying because then you get the impulse wave on a breakdown when the market stops rallying. APOL, MON, FSLR are some examples of those types of stocks. Hope this helps.
Jesse
You must master both sides of a trade – short and long because those are the basic skills every trader needs.
Mastering the basic skill sets is not the same as mastering every setup out there.
If you have good high probability long setups, try their inverse pattern in a short. You will be doing more of what you do right, like you should, only in its inverse setup.
Perhaps you could find an inverse ETF to show you the pattern as a long, then if it looks good as a long
in the inverse ETF, then take the short.
Fear due to your pattern of losses may be blocking your interpretation of the bulls or bears reaction when shorting. I would keep tight stops to get over the fear factor and only do very high probability shorts.
Very quickly, you’ll probably find no difference in your stats on whether you went long or went short.
Congratulations on reviewing your stats to detect this problem area.
You must master both sides of a trade – short and long because those are the basic skills every trader needs.
Mastering the basic skill sets is not the same as mastering every setup out there.
If you have good high probability long setups, try their inverse pattern in a short. You will be doing more of what you do right, like you should, only in its inverse setup.
Perhaps you could find an inverse ETF to show you the pattern as a long, then if it looks good as a long
in the inverse ETF, then take the short.
Fear due to your pattern of losses may be blocking your interpretation of the bulls or bears reaction when shorting. I would keep tight stops to get over the fear factor and only do very high probability shorts.
Very quickly, you’ll probably find no difference in your stats on whether you went long or went short.
Congratulations on reviewing your stats to detect this problem area.
All,
Steve; I’m a short-term intraday trader. I do not hit lows on momentum. I look for specific areas to long or short.
Jeese; I have been a prop trader for 14 months, still struggling, but have no interest or feelings of giving up. It’s not in me to back down from something I am committed to improving on every day.
Jcaldwell; Thx for encouragement.
I know Dr. Steenbarger would say work on your strengths vs focusing on improving your weaknesses yet giving up on shorts doesn’t sound like that great of an idea. Thanks for the comments.
All,
Steve; I’m a short-term intraday trader. I do not hit lows on momentum. I look for specific areas to long or short.
Jeese; I have been a prop trader for 14 months, still struggling, but have no interest or feelings of giving up. It’s not in me to back down from something I am committed to improving on every day.
Jcaldwell; Thx for encouragement.
I know Dr. Steenbarger would say work on your strengths vs focusing on improving your weaknesses yet giving up on shorts doesn’t sound like that great of an idea. Thanks for the comments.
As said above, the results of not being very profitable on the short side for the past year isn’t really surprising. There are also things that can be said about shorting : a down move will generally be more violent than an up move. Now how do you proceed when going short ? Do you have the same setups as the long ones or do you use specific rules (or adjustments) ? If you use the same rules, then maybe they do not fit very well for shorts.
You might also want to have a look at the trades that DO work : what did you do or did not do that made the trade work ? What did the market look like back then, what was the context (volatility, mid-term and long-term picture, etc…) ?
Finally, there are traders who simply prefer trading on the side which is in agreement with the big picture : in a bull market (like we’ve been having for the past year), they simply won’t fight the main trend and won’t take shorts. It’s not giving up or backing down, it’s just knowing where your strengths are. And if you really want to be profitable on the short side, then work on it a lot in simulation mode : screenshots, videos and replays of down days are your best allies that will help you keep your capital safe while you learn.
Anyway, just my 0.02$ :p Good luck with your trading !
As said above, the results of not being very profitable on the short side for the past year isn’t really surprising. There are also things that can be said about shorting : a down move will generally be more violent than an up move. Now how do you proceed when going short ? Do you have the same setups as the long ones or do you use specific rules (or adjustments) ? If you use the same rules, then maybe they do not fit very well for shorts.
You might also want to have a look at the trades that DO work : what did you do or did not do that made the trade work ? What did the market look like back then, what was the context (volatility, mid-term and long-term picture, etc…) ?
Finally, there are traders who simply prefer trading on the side which is in agreement with the big picture : in a bull market (like we’ve been having for the past year), they simply won’t fight the main trend and won’t take shorts. It’s not giving up or backing down, it’s just knowing where your strengths are. And if you really want to be profitable on the short side, then work on it a lot in simulation mode : screenshots, videos and replays of down days are your best allies that will help you keep your capital safe while you learn.
Anyway, just my 0.02$ :p Good luck with your trading !
There’s one post from Dr. Steenbarger about Success, Hardwork, and Competence that I re-read often.
http://traderfeed.blogspot.com/2008/05/finding-success-in-trading.html
Specifically :
“What that tells me is that, when you’re in the right trading environment and when you have the right work ethic, you will experience a steady, rising learning curve. As my book outlines, this will accelerate your development of competence, and that will put you on a path toward expertise.”
I don’t expect to be an expert right away so I will make this process of acheiving competence the foundation for all the expertise that I wish to acheive. I’d love to interact with the community and I’m reachable at [email protected] if there are any traders that wish to share their experiences with me. Thanks.
There’s one post from Dr. Steenbarger about Success, Hardwork, and Competence that I re-read often.
http://traderfeed.blogspot.com/2008/05/finding-success-in-trading.html
Specifically :
“What that tells me is that, when you’re in the right trading environment and when you have the right work ethic, you will experience a steady, rising learning curve. As my book outlines, this will accelerate your development of competence, and that will put you on a path toward expertise.”
I don’t expect to be an expert right away so I will make this process of acheiving competence the foundation for all the expertise that I wish to acheive. I’d love to interact with the community and I’m reachable at [email protected] if there are any traders that wish to share their experiences with me. Thanks.
There’s one post from Dr. Steenbarger about Success, Hardwork, and Competence that I re-read often.
http://traderfeed.blogspot.com/2008/05/finding-success-in-trading.html
Specifically :
“What that tells me is that, when you’re in the right trading environment and when you have the right work ethic, you will experience a steady, rising learning curve. As my book outlines, this will accelerate your development of competence, and that will put you on a path toward expertise.”
I don’t expect to be an expert right away so I will make this process of acheiving competence the foundation for all the expertise that I wish to acheive. I’d love to interact with the community and I’m reachable at [email protected] if there are any traders that wish to share their experiences with me. Thanks.
Just re-iterating what the above have said. U.S equities have been trending up since March ’09. This definitely has contributed to the bullish edge in all sectors, which may explain your success with longs.
I started trading in 2008 and only knew shorting at that time… Since the majority of your profits are from longs, my opinion is to ease into short positions. This is what i did with longs. I didn’t trust any of the March rally and got ripped apart for the first 1/2 of it. I advise to start with small size positions with shorts and ease up your size as your comfort level rises. I agree that shorting is essential if you want to be consistently profitable, but wouldn’t jump in with full risk until you are comfortable. My confidence with longs grew over time, and I’m sure yours will too (with shorts). Hope that helps
– Alex
Just re-iterating what the above have said. U.S equities have been trending up since March ’09. This definitely has contributed to the bullish edge in all sectors, which may explain your success with longs.
I started trading in 2008 and only knew shorting at that time… Since the majority of your profits are from longs, my opinion is to ease into short positions. This is what i did with longs. I didn’t trust any of the March rally and got ripped apart for the first 1/2 of it. I advise to start with small size positions with shorts and ease up your size as your comfort level rises. I agree that shorting is essential if you want to be consistently profitable, but wouldn’t jump in with full risk until you are comfortable. My confidence with longs grew over time, and I’m sure yours will too (with shorts). Hope that helps
– Alex
For scalping, short and long risk and set up are pretty much the same. You are trying to catch 1 or 5 cents at most. Swing trades you really have to analyse the stock, both fundamentally and technically. So, to answer, should you go long or short, it all depends on what trades you are takin g, scalping or swing?
Lots of great comments so far!!! I’ll take these great ideas and implement them into my trading.
To make it clear, I’m a short term intra day trader. I’ve use a lot of level 2 reading and have been on 1 or 5 min charts. With the way the market is trading these days, I’m really trying to get into longer timeframes like 15 min charts.
Lots of great comments so far!!! I’ll take these great ideas and implement them into my trading.
To make it clear, I’m a short term intra day trader. I’ve use a lot of level 2 reading and have been on 1 or 5 min charts. With the way the market is trading these days, I’m really trying to get into longer timeframes like 15 min charts.
Eric,
Are there shorts that you can identify that do work for you as Grotaiche suggested?
On Friday did you focus on shorting as we broke SPY 108.60?
Bella
Great question and great advice Grotaiche. Shorts do work for me in the form of following the opening drive. The areas where I am not doing well is shorting when it pops into resistance areas. I trade AAPL quite often so I will use AAPL as a case study.
Bella, I was certainly focused on shorting on Friday. Here is my thought process:
The sentiment on the jobs number was pretty bad which gave me a short bias. However, shorting down into momentum does not work so I want to wait for a pop and then short a certain area. If you look at the chart of AAPL for the last couple days it could not break below the 260.50-260.30. I saw some decent pressure holding down 260 on the tape and I began my shorts. When that lifted I tried 260.30 and even 260.50. I felt that was a huge level and it would be a high percentage play. It did not work out as I saw offers being lifted heavily after my shorts and I was forced to bang out at 261. This is the thought process I use for all my shorts.
Also, as you can see on the chart, it consolidated higher up around 262 and then made its final fail to lower areas. I don’t like shorting into these consolidation areas because I feel there’s a 50/50 chance it can move higher or lower.
Everyone, feel free to break down my thought process and fill it in with yours. Much appreciated.
Great question and great advice Grotaiche. Shorts do work for me in the form of following the opening drive. The areas where I am not doing well is shorting when it pops into resistance areas. I trade AAPL quite often so I will use AAPL as a case study.
Bella, I was certainly focused on shorting on Friday. Here is my thought process:
The sentiment on the jobs number was pretty bad which gave me a short bias. However, shorting down into momentum does not work so I want to wait for a pop and then short a certain area. If you look at the chart of AAPL for the last couple days it could not break below the 260.50-260.30. I saw some decent pressure holding down 260 on the tape and I began my shorts. When that lifted I tried 260.30 and even 260.50. I felt that was a huge level and it would be a high percentage play. It did not work out as I saw offers being lifted heavily after my shorts and I was forced to bang out at 261. This is the thought process I use for all my shorts.
Also, as you can see on the chart, it consolidated higher up around 262 and then made its final fail to lower areas. I don’t like shorting into these consolidation areas because I feel there’s a 50/50 chance it can move higher or lower.
Everyone, feel free to break down my thought process and fill it in with yours. Much appreciated.
Tonight on StockTwits TV we will be discussing how to short using Friday as an example. Check it out!
Really great show. I shorted into a up move while you were focused on waiting until the SPY was breaking down to short. Every time I make a short trade I will use this thought process. I will have a level on the SPY and I will have a PRICE to short on AAPL.
Really great show. I shorted into a up move while you were focused on waiting until the SPY was breaking down to short. Every time I make a short trade I will use this thought process. I will have a level on the SPY and I will have a PRICE to short on AAPL.