From what I have heard from even very experienced investors shorting is a very difficult game. Even if your logic is sound you can still suffer big if your timing is not right.
Personally I would short a stock only If i see possibility of stock going to zero. That means a failing business or something with deep fundamental issues like fraud or corporate governance problems.
Fundamentally well run businesses can suffer temporarily drawdowns due to cycles or valuations etc. but you need to be right both with the thesis as well as the timing
We all know that stock prices don’t always move in one direction. They move in cycles. The whole point of shorting is to take advantage of the downside moves ( after developing conviction based on multiple facts)
I go short in the following cases
My first and foremost condition for shorting is that overall market trend should be down (opposite is true if I want to go long)
a) After Climax Moves in certain stocks - current eaxample -Deepak, Fine Organic ( you can learn about climax moves by clicking on following link )
b) When I find valuation overstretched + rest of the stocks in the sector start correcting + overall market sentiments are weak ( for example , am planning to go short in CDSL in coming days as all platform -companies stocks have already corrected a lot but CDSL is yet to fall to a reasonable degree).Keep in mind that all stocks in a sector move in a herd. Some are early movers and some are laggards.
On technical-studies basis :
c) Head & Shoulder pattern or rectangle pattern breakdown (current example Dixon,Naukri ,IPCA)
d) A zig-zag correction (ABC) , based on EW - I wait for 5 waves correction in wave A, completion of wave B and then I try to short when I get confirmations that wave C is about to start. (refer to the follwoing pic) Current example : Naukri, CDSL
There are many other methods also.
Yes it is not so easy. But you would agree that making serious money in any proffession is not easy, one needs to study , practice ,improvise , manage risk and to be patient.
Hi
You can keep tata steel in watchlist for short.
Its a perfect cyclical going thru distribution phase.
At 1300 ,I was of the view that its a trap only in upside and then it cracked after few days.
In the process it has made a perfect M .
Now the journey will be LL LH.
Being cyclical that too metal may give some great short opportunities going forward.
Metal stocks might give a tempporary move towards upside in short term.The joker in the pack are oil stocks, might not fall along with others while banking stocks weak from here.
What do you think of stocks which are hovering around 52 week highs or all time high like ITC or Mirza International in this downtrending market. Book profit or hold on to the positions? What are their prospects as per stageinvesting?
Any stock above 30 Week Moving Average is supposed to be safe. It is either in Stage 3 or Stage 2. (If it is taking support above 10 WMA , then it is considered to be in momentum )
Be catious if it breaks & closes below 30 WMA and breaks any previous major trading range , then it is considered that it has entered in Stage 4 (declining phase) . In stage 4 , a stock can decline to very low prices or it won’t move up for weeks/months ( time-correction)
If one is a die-hard fan of some stock, then he/she should reduce/exit the position once it closes below 40 week moving average.
On the other hand, if someone has taken vows to live and die together with a stock (साथ जीने मरने की कसम खाई है ) then he/she should be ready to die once it closes below 40 months moving average as stock is going to die below 40 MMA so the investor should also be ready to die .
Keep in mind, if the major fall comes then every stock gets affected.
My favorite saying ,“When tide goes up even stones start floating and when tide goes down , even fish start to suffocate”.
PS: When I say closing below 30 WMA, 40 WMA or 40 MMA , that means one should check closing price at the end of the week and in case of monthly average, one should see whether it closing below 40 months moving average at the end of the month.
Thanks for providing good perspective on your investment approach. Mind sharing snapshot for CDSL and Naukri on EW (as per point d). I am just curious to see the timeframe and fitment of the pattern for academic understanding of the pattern.
can you please share your views about redington’s chart. last one year it has been consolidating but recently moving around danger zone and is it very likely to fill the gap around 95 to 100 and go lower?
even i’m confident about fundamentals and future. but the recent ceo resignation and break from 1 year trading range even with such low pe adds some short term doubts. already reduced half my exposure. anyways will wait to add more if fallen and gap is filled.
Once I decide on overall direction, get convinced about sector/stock direction then I long or short for months . For that, keeping enough margin money in account is the key.
S/Ls and trailing levels keep changing every week-end.
Probable new candidates for shorting: Polycab, Pidilite - don;t know why a pipe company has such a high PE and Pidilite is losing margins. Would check the technicals on weekend and decide.
