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Like all trading, it's risky.
Unlike most trading, it is, by definition, going counter to the general likelihood of stocks. That is, the tendency of most stocks to want to trade higher.
Short selling is especially dangerous in single stocks for amateurs because:
- information unknown to the market is hard to come by in any kind of timely way
- upside reversals are violent and far more lengthy than one would expect
- there is ongoing cost associated with short positions not present in a vanilla purchase in the form of financing the borrow*
At any rate, hopefully you see my point. There's just no reason to trade the short side when you're new to the markets... if ever.
That said.
SIVB presented the mother of all shorts a little over a year ago.
And it was yet another instance where the charts preceded the perception of the fundamental data by almost a year. In fact, the charts lined up so perfectly that even I would have been compelled to take the trade... and I don't trade single stocks.
Allow me to explain.
During the week ended Friday 21 January 2022, SIVB gave a classic Simple Trading signal on the weekly chart. Price pushed down through TAOST Weekly Channel and closed below the bottom of the channel [1]. Price behavior suggested in no uncertain terms that there was more downside to come. Still, that's not where I would have taken the trade.
Beyond the fact that I'm not a Breakout Trader... there's another reason I wouldn't have taken the trade at/around the closing level of the week ended January 21st. If you look to the left, you can see an area that was previously resistance [2]. That area would now be reasonably expected to act as support... and likely lead to a near-term bounce.
If you've followed me for any length of time, you know that I'm a big fan of Retracements & Pullbacks. In fact, I'm highly unlikely to enter a trade without observing whichever is appropriate to my trade... preferably against a Support or Resistance Level.
In this case, price behavior delivered just that [3].
Trader's Note: After price closed below TAOST Weekly Channel and I decided to look for a short entry, I would have dropped down to a lower timeframe to look for an entry setup.
Why you ask?
For several reasons, but chief among them to tighten my risk on the trade[s]. As you can see from comparing the weekly chart above and the daily chart below, the range of prices over any given week is far larger on the weekly vs the daily range. Thus even if my entry is stopped out a couple of times, it's still worth that cost to get into the trade [4].
In any case, even if you missed the optimal entries at [4], there were still other possibilities over the course of 2022 before shorts started "talking their book" early this year. You can see them clearly marked below [5].
That's it for this post.
Trade well.
