Market " Must Know Rules "

[Grey1]

Which one of below is technically wrong or an invalid statment ?

1) Shorting strong stock in strong market
2) Strong stocks falls faster as market weakens
3) Strong stocks are those performing higher highs through the day
4) Strong stocks are strong all through the day ..
5) Strong stocks have higher relative strength compare to the market


Grey1

 

[leovirgo]

To me no1. is technically wrong. Shorting strong stock in strong market is very risky. My assumption here is both the stock and the markets are still strong with no signs of weakness and exhaustion so far..

 

[frugi]

2. A high beta stock might do so but a stock that has exhibited strength during index pullbacks in an up trend by pulling back by a lesser % is unlikely to fall faster than the index when the index trends turns down.

1 is okay provided one can spot the signs of exhaustion with little doubt, as leovirgo says. Fighting the tide is generally thought of as risky but offers an excellent reward if one's timing is correct. That's a big 'but', but not an invalidator

Futures traders sticking their noses in again.

 

[Nastrader]

Which one of below is technically wrong or an invalid statment ?

1) Shorting strong stock in strong market
2) Strong stocks falls faster as market weakens
3) Strong stocks are those performing higher highs through the day
4) Strong stocks are strong all through the day ..
5) Strong stocks have higher relative strength compare to the market


Grey1

I would say item # 4, since even strong stocks have slight (temporary) intraday weaknesses, and 1 out of 4 stocks will fall with a weak market (especially after a prolonged amount of time. It is assumed that you define a strong stock with the kinds of stocks we trade (i.e., Vol > 1.5Mil/DAy, ATR > 1.0). AAPL today is a good example.

One key word is missing; a Strong Market would make this statement valid.

 

[kako]

Hi

yes, i'd also choose #2. first 1 is ok by me because IF it's exhausted and Index is OB, it's ok to take the short, even for strong stock.

i don't think strong stocks fall faster, when index weakens. best candidates toshort, when the index starts to weaken, are those who resisted to go up, when mkt was rallying. it's like a spring, it absorbs energy by not going up, when mkt is up, and when mkt waits for a pullback(or mkt is exhausted which is much better), then the spring's energy will let go, and will crash the stock. this is my understanding of path of least resistance as Grey1 described.

Regards
........................................
Kako

 

[kako]

oh, just saw this post of Grey's

http://www.trade2win.com/boards/showpost.php?p=269555&postcount=264

i think it contains the answer to this poll

 

[samtron]

Which one of below is technically wrong or an invalid statment ?

1) Shorting strong stock in strong market
2) Strong stocks falls faster as market weakens
3) Strong stocks are those performing higher highs through the day
4) Strong stocks are strong all through the day ..
5) Strong stocks have higher relative strength compare to the market


Grey1

Having slept on this over-might I would choose more than one!
1)Shorting strong stocks in a strong market.
2)Strong stocks are those performing higher highs through the day .(I would say all stocks go
thru periods of consolidation; so a strong stock could be flat at some periods in the day.)

 

[paulf]

I'd say #1
If both stock and market are strong then how can shorting be justified?
Its just too risky.

paulf

 

[animal]

Only #5 seems to be a valid statement

It defines what strong means

In this case the rest are invalid (or require further definition)

 

[Grey1]

The answer to the quiz above is NO 1. You don’t short strong stocks and the term strong means those stocks that have higher relative strength to the market. It does not necessarily mean stocks that are in positive territory . A strong stock could gap down @ open as program trades might have orders to execute @ vwap but shortly after that they become the strong stock .

There fore never be fooled if a stock gaps down @ open or shows weakness for a while as these stocks could be subject to VWAP execution and could gain strength after the order has been executed. These stocks are like Gold mine and are easiest plays of the day with high reward and tiny risk


Can I ask members of this BB to super impose the chart of INDU on the stock they are trading and look for divergence of stock to the market . This play is a PRO play and boy is profitable. I have already posted a chart of Divergence earlier on .

Look for instances where stock does not shadow the market . you need to look for those stocks that seems to have mind of their own than being bullied by the market direction ….
Grey1

 

[samtron]

The answer to the quiz above is NO 1. You don’t short strong stocks and the term strong means those stocks that have higher relative strength to the market. It does not necessarily mean stocks that are in positive territory . A strong stock could gap down @ open as program trades might have orders to execute @ vwap but shortly after that they become the strong stock .

There fore never be fooled if a stock gaps down @ open or shows weakness for a while as these stocks could be subject to VWAP execution and could gain strength after the order has been executed. These stocks are like Gold mine and are easiest plays of the day with high reward and tiny risk

Priceless information, as always thanks for sharing Grey1