Stock Trading: 3 Simple Rules When Selling Stocks Short
I would be willing to bet that there are fewer people interested in learning how to sell stocks short today than there were a few days ago.
That’s because it is human nature to want to buy when stocks are moving higher and sell when stocks are moving lower. And we know that when it comes to trading and investing, human nature is often wrong. In fact, one of the things that makes both long term investing and short term stock trading work is the fact that most people buy high and sell low, rather than the other way around.
If you are seriously interesting in learning how to sell stocks short consistently with success, then there are a few guidelines backed up by quantitative analysis that you can consider adding to your stock trading strategy.
1. Only sell stocks short trading below the 200-day moving average.
2. In addition to #1, only sell stocks short after they have rallied rather than after they have pulled back.
3. In addition to #1 and #2, look to sell stocks short not just after they have rallied, but after they have made additional intraday gains.
Keeping these three tips in mind can help you improve your success rate when it comes to selling stocks short. While other traders are busy trying to sell short stocks that have already been beaten down, traders who follow these simple rules will find themselves able to enter and exit the market on the short side with true, quantified edges on their side.
These guidelines and more are included in Short Term Trading Strategies That Work: A Quantified Guide to Trading Stocks and ETFs, by Larry Connors and Cesar Alvarez. You can download a copy of the book (or have a paperback copy sent to you) for free by following the link below.
Short Term Trading Strategies That Work: A Quantified Guide to Trading Stocks and ETFs.
Here are 7 Stocks You Need to Know for Wednesday
Many of the stocks making the biggest gains ahead of trading on Wednesday were energy and materials shares following through to the upside to close above their 5-day moving averages. Among these stocks were ^BTU^ and ^TSO^, up more than 5% and 4%, respectively.
Note that, BTU is trading below its 200-day moving average, whle shares of TSO are trading above that level.
Up more than 6% on Tuesday were shares of Whole Foods Market ^WFM^. The stock closed higher for four trading days in a row.
What’s down on an up day? Shares of ^WAG^ pulled back by well over 4% after rallying into overbought territory above the 200-day moving average on Monday.
Rallying by more than 5% in Tuesday’s trading were shares of ^PCLN^. The stock had previously closed in oversold territory for six consecutive trading days.
^GMCR^ rallied to a new closing high on Tuesday, gaining more than 3%.
Tuesday’s strength continues to drive financial stocks higher and closer to overbought territory below the 200-day moving average. Among these stocks, ^C^ was one of the session’s bigger gainers, adding 3% on the day.
David Penn is Editor in Chief of TradingMarkets.com