This video is for everyone who sees a stock at new highs and immediately thinks it should be shorted. That is not a good idea. Stocks that are at 52 week highs tend to keep going up. I like shorting things that go up, but only if they go up a lot very quickly (like 100% in three days) and then I will only short once they start to fade (I particularly like to short once they go red on the day in the afternoon after fading gradually).
Disclosure: No positions in any stocks mentioned in this post. I have a disclosure policy and you can find all my disclaimers there as well; those disclosure & disclaimers are incorporated by reference into this post.
20 thoughts on “Why I don’t like to short stocks at 52 week highs”
I’d bet any amount of money that Lucid learned his lesson with NLST.
DRAM trying to breakout
Would you mind posting another update / review of Investors Underground?
I don’t see why I would do that. I haven’t done many trades recently based on alerts there. The only one I can think of is my BLAP trade from yesterday.
Umm … I just gave good evidence to show that shorting at 52 week highs is in general a bad idea.
GGR a perfect setup for HOD short but AMTD has no shares.
I’m short 600 DRAM @ 4.41, target 4.00. Stop is 4.60 but only if the volume spikes, not just the price.
This is not a great set up, not as good as GGR was.
hi Preston: is that a 52 week highs short just under Reaper’s “don’t like to short stocks at 52 week highs” post?
lol, just kidding…
i am looking at it but not shorting … looks too strong for my taste.
Yep, I think your right qb. I’m still in but my fimger is on the trigger. I should’ve waited for more shares to trade, I went in about 700k traded, should’ve waited for it to break 1mil. I know better.
Maybe you should consider only shorting the big runners that have negative long-term charts. DRAM is a really nice-looking breakout on multiple time frames.
Preston, something to be aware of is the size of the float. DRAM has less than 10 million shares in the float. IMHO these type of stocks are quite risky to short.
I have also noticed that my luck is not very good with stocks that have had not traded much in the past. Definitely no overhead supply once it starts making 52 week new highs.
just my 2 cents.
With negative you mean spikes that fail or choppy with big swings.
I got to impatient on this trade, I may cover for a loss but I didn’t wait for my rules to be filled to enter.
I just covered when I should be entering, bad trade on my part. Well a little more tweaking, back to the drawing board.
– 180 on that trade.
By negative I mean where it is not a breakout, ie the charts that I would not want to buy.
Damnit, sometimes I hate this game. I covered and it drops .30 in a few seconds, unbelievable.
Thanks for the help guys, I will continue to mess with it. This has started to develope into a complicated strategy that has to many elements.
I’m trying to reverse it, or my thinking anyway, to buy breakouts instead of breakdowns, I’m going to start trying that next week.
I’m not going to give up this strategy though, sometimes it delivers easy winners, or my luck is running out and I will start losing every trade.
Michael, your right about that as usual. 🙂
I’m going to add that in, I always look at that but I have never let it sway me in deciding to enter.
If I add that in, not buying true breakouts, I think that will help, it will cut down on plays but my risk should go down two fold.
When I started investing, I was very much against learning technical analysis (I assume the ‘breakouts’ we discuss are primarily technical in nature) because the principle ideas seemed arbitrary and even made up on the spot – and “academic research” had suggested it was no better than chance in its predictive value.
I got over the mental hump once I realized that you’re not supposed to short every heads and shoulders pattern – not all, not most, not half, not a third, etc.
Its the mental filter that makes *any* TA strategy work – even the looniest ones.
heres a quote from William Eckhardt from New Market Wizards – imo, his chapter is the best in the entire series – that encapsulates why it is so tempting to short issues at new 52 wk highs:
“People tend to view prices they’re used to as normal and prices removed from these levels as aberrant. This perspective leads people to trade counter to an emerging trend on the assumption that prices will eventually return to “normal”. Therein lies the path to disaster.”
Growth investors and MOMO people look exactly for stocks hitting 52 week highs. These people are not into value so they can drive it way higher than sane and break you if short.