I've been thinking a lot about stocks which have undergone parabolic rises based on (what I consider) a lot of hype and little substance. That's been fueled by where the bulk of my trading profits have come from over the last few months -- shorting those type of parabolic moves. (Some call those stocks "flying pigs".)
For example, I've shorted VERI 3 times after the crash through 60:
OSTK 4 times (breaking even on the first 3 attempts but a nice winner on the 4th)
XNET was the biggest short-term winner I've had this year...
— Michael Seneadza (@TraderMike) November 29, 2017
So after that XNET success I really started thinking "I need a way to find these kind of movers quickly." So I'm thinking about adding a "Gone Parabolic" scan. I have some ideas on how to do it. Some criteria:
- Must be above the Upper Bollinger Band
- Must be trending up very strongly (can use ADX and Directional Movement for that determination)
- Must be up over 70% in the last few months
- Must have Overbought Stochastic (almost a certainty if the above are all present)
I'll be playing around with that over the weekend to see what I can come up with. But in the mean time, a pretty good approximation is to use the Percentage Gainers scan, looking at the last 90 days and checking the charts of those stocks which are up more than 70% over that period.
Of course with any of these scans, you'd want to investigate why the stock has been rallying and then decide a course of action.
*** Note that shorting these kind of moves is not for the faint of heart! You can get slaughtered if you jump in too early. So if you want to wade into these waters, be sure to have a well thought out plan and control your risk (scaling in may help).Read More ➞
Those who used to read my old blog know that I have no problem at all with short selling. See some of my old posts like 'The (Very) Basics of Short Selling', 'Short Selling *is* American' and 'Pick Your Spots When Selling Short'. So in that light,when I saw that NPR's Planet Money podcast did two episodes about short selling I was very interested in seeing how they'd handle the subject. The second of those episodes was the story of the first short sale ever, which was back in the days of The Dutch East India Company:
There have been short sellers throughout history. Today, the story of a man who was the very first short seller. The first person to bet that a stock will go down. It doesn't go well for him.
That was a very interesting story but I want to focus on the first of the recent episodes, which was titled "We're Short America". That episode was their version of 'Short Selling 101'. They explained how shorting worked and actually took a small sum of money and shorted the S&P 500. But they left out some things that I think are very important to fully explaining the risks of shorting.Read More ➞