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RE: Into the Black: Trading Journal Day 7
What do you think on shorting? If it goes bad, you can lose a lot of money. Where do you short as well?
What do you think on shorting? If it goes bad, you can lose a lot of money. Where do you short as well?
I prefer not to disclose the name of my primary broker because it's not an arrangement that would be available to most people. Most retail brokerage accounts allow shorting if you have at least $2000 in a margin account, though. I was very surprised to find that Robinhood does not.
I'm very disciplined about putting my stop orders in place immediately after entering a position. There is still a risk of a massive overnight gap above my stop orders, but usually there is enough awareness in the market to pull the stock out of any downtrend that I might have a short position in, and often enough to get me into a long position first (like the two earnings 'surprises' I already caught this week).
I will write about shorts more in the future though, because they have interesting behavior. I need to look up who it was again, but... one of the best performing 'short focused' hedge funds has a 20+ year record with average annual returns exceeding 20%. They select shorts using deep analysis, and they net hedge everything against the market index.
Their average annual return on the short side of the portfolio was less than 1%. In effect, when the market is going great, their shorts lose money (but not as much as they make on the index) and they underperform. When the market tanks, their shorts crash harder and they end up with net positive returns (massive outperformance). It's weird and counter-intuitive.
I try to trade the price action without too much market bias, but I will dig in over time to see how individual positions do relative to trend. (In effect, can I improve my performance by never shorting if I have a long signal on the index, and vice versa?)