Resolute Energy Corporation (REN)
Why the short position is a no brainer?
First off let me start by saying had I known the
stock would move as much as it did up I would have taken shares long first to
use that profit in the short back down. I call this a #TarzanTrade such as with $CORI
I expected an up move but not a 30%
jump otherwise I would have been long first.
Look it up on Twitter I coined the phrase #TarzanTrade and pretty much only one who has used it for trading both directions around a pivot. Usually up first then down
Before I start to get into this trade and in the
manner of full transparency I am currently short $REN as a swing, I have been
shorting it daily from last week as a daytrade due to this ticker being up on
no real strength other than just a bad short entry and the squeeze. https://twitter.com/Osirustwits/status/769168758854209537
this is not a typical post about
the company or the ticker. This post is about how I am now trading it because I
see too many who have gone forward and followed others or a GURU which is
something I never claim to be and are now drowning or worse covered for 4 digit
loses. Reading 1 guy has blown up 97% of his account hurts. I was once in those
shoes but I have evolved and adapted as a trader now. Hopefully this will help you too.
5 rules to shorting a stock
1) Are you shorting the chart or shorting the company. 2
different trades know which you are doing don't confuse them
2) Know your risk a tech short should never be more than 10%
your capital to start never more than 33% ever
3) Never let your risk move over your reward that ratio is
key for being profitable
4) Does the company have any options if so yes watch them if
not watch volume.
5) Never short before the first red day as the next day gives
you a pop to short but also gives you a clue for the trend change.
6) Stick to your plan of
risk reward and put the emotions away money has no feelings and no loyalties.
I had no borrows the 2 days prior thus no trade (hindsight that was a blessing).
Now brings the reason for this post too many don't
understand what the term protection and having a stop in mind are.
The stop is to limit the amount of loss you can take
if a trade is going in the wrong direction. Too many are just adding and not
taking size back off in the drop in fact they are adding at the bottom of the
drop and not the top. In fact an entire chart is rumoured to have shorted the
$15 break and the price action and this post would lend the strength to that http://stocktwits.com/message/61397722
(but what do I know
"Elitedaytrader" AKA Luke Murray by some said I am a twit the squeeze
was already done.)
This mindset is bad very very bad as each time you
add to your short or cover you are borrowing or repaying your borrow on shares.
How do you do this? You exchange money for shares yes you give those bulls more
cash aka ammo. This is the opposite side of what I call the short swap on a
break out where you have the long position and are selling/lending to shorts.
Thus each time this dips they have enough cash to buy up and squeeze shorts,
mainly those shorting the bottom of the chart, who in turn cover at a higher
price fuelling the move back up as other longs join in and it breaks upward.
This pump move started under $6 to be conservative so you can see the avg price
for these early longs is far under the stock price.
So how do you protect yourself against this type of
move and still short this manipulated ticker? All that goes up must come back
down theory is strong on @Stocktwits. You first off don't short where support
is short way above at resistance, cover into support and re-short under support
once it cracks with a stop breaking back above support. This is what I have
been doing as a daytrade it works very well with very high success. If you
remember 1st time I broke that rule was on $KBIO https://twitter.com/Osirustwits/status/667065707503337472
also a crowded short. Second
time was on my short of $IO Ion Geophysical also a manipulated push took a
$1400 or so loss on that before I shorted it back for profit down. I was not
taking a strike 3 on breaking my rules.
I bought option September 17th 2016 $16 and $17
calls 10 and 20. Each call is a lot of 100
so using these calls is how i am basing my risk. The price goes up in my
short I avg up and cover down into a drop to get the lower shares off and my
avg up. Worst case my short moves against me by $3 based on my avg now I call
my options and get out for $17 plus fees. This is called getting protection
those calls were $1.25, $1.70 and $1.85-2.00 when the price jumped but the
options didn't move I shorted the pop covering into the drop. I was underwater on my short so I had to get my head back in profit or closer to the surface and i covered as I was over my account comfort. Some see that as scraping I see that as repositioning due to a squeeze without panicing. I think the algos
on the options are smarter and faster than I am and yes I know stocks and options don't
move in unison. All profit from my shorts on the day goes to buying protection
and if this moves high enough I will swing puts from that profit too.
When I said this trade was based on fundamentals now
I was serious about how much I put into a fundamental short technical shorts
are never with this much effort, size or planning. this doesn't even include
the DD on the company nor have I or will I touch upon that at all in this post. Once
you have added that yourself see if you agree it is a no brainer short but where and when do you enter? That is the key.
I
just hope anyone who is short has done the proper homework and has done a due diligence
of more than just it is up on nonsense, as yes we all know this but the market
cares not for what we think. Algos have no emotions and no morals neither do insiders who dump into a man made rally.
None of this is an indication to buy sell or
anything else it was just how I am trading my money with my risk and reward.
trade safe.
