A 'Short' Experience
I have never shorted a stock in my life until today. I thought it was very risky because there is the possibility to lose more than you put in if you short a stock and hold on while it goes to the moon.
However, my readings on Trend Following have changed my opinions.
As long as you put in proper stops before you short a stock, there is no more risk than going long that same stock.
So today I decided to short 2 stocks in very little quantities to test the trends with little risk because I am putting in very small amounts of capital.
What are they?
Well I looked at the 52 week lows yesterday and I saw a name I have heard before: Centurion Energy: CUX.TO.
Except I remember it when it was one of the highest flying stocks, now it's a dog. So what do you do with dogs? You short them!
As you can see, the trend is obviously down and the price is well below its 30 day Moving Average (blue line).
My exit strategy is either get out at $7.70 which is a 25% stop loss or when the price crosses the 30 day M.A. However, if the stock continues to go lower (maybe around 15% lower than these levels), I will probably double by short position.
The second stock I am shorting is Yamana Gold: YRI.TO.
It's just a gold stock that had decent volume and a downtrend so we'll see what happens.
With YRI, my stop loss is again 25% at $11.96 or when the price crosses the 30 day M.A. And again if the price continues to drop, I will consider doubling my short position.
I will not pretend to you that I am an expert at shorting or at trend watching.
It is all new to me but I have put in the hours reading and educating myself on the strategies.
With these trades, I am risking very small amounts of money to test what will probably become my new strategy.
And of course, I am not recommending you do these but I do suggest you be very careful with the stocks on my list because I think I am going to have to put a big "Sell" on everything because the trend unfortunately is down...on almost everything!
The thing that is brilliant about Trend Following is that you simply react to what the market does. Trend Followers never catch the bottoms or the tops of market trends, they just get the lucrative middle over and over again.