Never short based on price action. A stock that is going straight up can continue at least until you are bankrupt before falling to the ground. - Never short based on valuation. A stock might be expensive at 100 times earnings and it will be even more expensive at 200 times earnings.
- Unless you are hedging, your short positions should be 1/3 the size of your long positions.
- Believe it or not, short stocks that have high short interest. In general, short squeezes are a myth and stocks that have high short interest are usually shorted for a reason.
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Never short based on price action. A stock that is going straight up can continue at least until you are bankrupt before falling to the ground. A Thought Experiment
Assume that only daytraders are left trading. Assume they all enter in direction of recent moves sometime after open. One would believe that they try to maximize profits by trailing or waiting til near close to close position, then on close close position and pull orders. What would market result be? I am guessing something like today’s price action might result. It is difficult to verify this, but perhaps the assumption is not too far off or just a case of fitting the theory to the facts after the fact?