I have been seeing some good success with my swing trades, especially involving the high short floats. But as with all trading methodologies and tactics, you will have losers. The key is to cut them quick and move on. Another component to becoming a successful trader is to take the losers, analyze and see what you can do to enhance your trades next time. Sometimes, it’s just probabilities and there’s nothing there. Sometimes, there’s something.
While most of the swing trades I take now have a high short float and were in established downtrends and now looking to make its first leg up or reverse, many of the trades I took were also in established uptrends.
I thought it was kind of weird….. why is a stock in a strong established uptrend have 40%+ short sellers piling into it? It doesn’t make sense. To me.
I did some digging. A lot of times short float does not take into consideration what the market makers are holding. And they could be holding a lot (long or short). Also, these funds and institutions usually know something we don’t. So if they are holding a large amount of shares short in a stock that has been trending up all year, they probably know something we don’t.
What I’ve also found out the hard way is that they really pile in when the stock is looking to break out. Whether it’s longs selling their positions or shorts piling in even more, once these stocks in uptrends with high short floats look to breakout, they immediately fail. Stubborn hedge fund manager doesn’t want to lose on his short position? Algos that are fading new highs? Could be both, could be something else I don’t even know about.
Take a look.
Got into this one a few days ago. Triggered in a few cents up and came crashing back down real quick.
I got stubborn with this one. Was triggered in last week and when it failed, I exited rather quickly. Then I decided I’d enter should it break the slightly new high it just made. Entered again, hung around the highs for a day or two and came crashing back down. 2 losses with this one.
I didn’t enter this one as one of the blog readers had emailed me on it. Same story. Strong uptrend, makes a new high, almost immediate failure.
So going forward. I will not be taking these breakout trades with high short floats if they are approaching new highs or in an established uptrend. The ones that work best seem to have been beaten down all year in a long downtrend. Short sellers probably got lazy thinking they’d be cashing in until the stock hit single digits. Once a buyer started pumping money into it, they got a little scared but not too much. Then as more volume and buying came, some hit the exit and the ones that stuck around, really got clobbered and sprinted for the exit as is the case with CAR, OMER and PLNT.
Any other nuances or behaviors you guys come across, please post them. I would like to get as many ideas and improvements as possible.