Looking to ramp up your short game? This is a pattern that’ll help you make money from the brokerage stocks. (June 29, 2018)
BKR AMT AMTD ETFC BKR ETFC
In this video we are going to look at some of the brokers, Interactive Brokers ( NASDAQ: IBKR ) here, TD Ameritrade ( NASDAQ: AMTD ), stuff like that and here is why: I want to show you a setup that I think is going prove fruitful on some of these. Interactive Brokers ( NASDAQ: IBKR ) really gives kind us the best view of this. It is a trade that already took place but it gives you a really good idea of what I am talking about here.
This has been a monster stock last year and then this year it has just been in kind of a nice steady uptrend; you can see where the big break was here. A smaller one here but it didn’t amount to much. That is actually my point; we get a breakdown below the 50-day moving average, it kind of stays down around there for a while and then ultimately takes off again. It moves from $70.00 to $80.00, you do the math that is a pretty good percent return. So this idea of selling a stock or certainly shorting a stock, but the idea of selling a stock just because it breaks a key moving average, that is not necessarily a winning game.
Now, hanging onto a stock when it breaks a key moving average isn’t necessarily a winning game either. So what you have to do is, you just use your common sense and understand how charts work. So here, the stock runs up and ultimately breaks down, right? Well, it is easy enough to go back and do results orientated analysis and say, “Well, this is where you short, right here.” But this doesn’t look a whole lot different than this back here. We WAIT until the breakdown has run its course, it is like a three-part thing, the breakdown runs it’s course. The stock moves back up to try to regain the trend, which is what we had here: a breakdown and then the stock moves back up to regain the trend and then shorted or sell it when it fails to move higher.
Well, we don’t get the third part of the three-part test here. It breaks down, rallies back but then it doesn’t fall it actually does regain the trend and moves higher. So here we have got the first part here, a breakdown, volume, higher than average for the 5 days here on pretty heavy volume. So fine, you are looking at this stock and you are waiting and you are waiting and you’re waiting. Now you are looking at this and unlike back here where it took 4 or 5 days for this to regain and you really saw some strong buying coming in here, we are not really not seeing that at all. We are seeing a little pullback here and then this is starting to move higher.
So now this is getting interesting. It is not getting interesting from a long standpoint, it is getting interesting from a short standpoint; from a bears trade where you are looking now for the stock to fail right around here (I forget exactly where this went to but I remember what the pattern looks like). You are looking for it to fail right around here and frankly the closer to the 50-day moving average this gets, the better. Because that is a key technical level and if you can short a stock that gives you a good short setup. If you can short this stock really close to a key level of support, which would now be resistance, that is a really good high probability low-risk trade because you could put your stop, your buy stop, which is why this is green, you can put it right up here.
So you short the stock on the first sign that the stock is not going to make it back up, which it did make it back up here, you short the stock here and then the risk is the difference between where you shorted and the price level that is right up above the 50-day moving average where you would cover for a loss. We can see how this worked out. So just kind of right around in here you are saying,” I want to short the stock.” You could probably do it at 72.00 but let’s just say 71.00 even. And then now the stock is finally all the way down here. So this would be the time, frankly, where you would look to be covering your short.
You shorted right around 71.00 or so and now you are down here. You made almost 10 percent, which, for a short trade, that is a really good trade. I would like to make 15-20 percent on a stock that I buy but on a stock that I buy short. Hey, if I can make 8-10 percent that is a grand slam because there is always an upward bias to the market so you’re not going to get these big, massive returns on the downside. I don’t care what your friends or what any money managers who are on financial television tell you. They don’t make a lot of money on the short side, they just don’t. If they say they do, well then you can have the extra confidence when you are listening to that person that you are listening to a liar and that can be really good to know. This is the pattern that we ultimately look for.
Now let’s look at some of the others here. TD Ameritrade ( NASDAQ: AMTD ). This kind of already had that move. It would be in the same place as Interactive Brokers ( NASDAQ: IBKR ), where the stock is down here, it is close to this support level here and look to go ahead and cover that short. By the way, it is not just the 50-day moving average that is the magical indicator. What about the 200-day? What if the stock fell further? Do we short it here at 53.00 or 52.00? No. Because now you have got to be looking at the entire distance that this fell and that is quite a ways. Instead, you are watching this and then if it were to rally back up to close to the 200-day moving average, THAT’S when you short it. You keep a buy stop right up there and then you are looking to ride this thing down for 8-10 percent and then you are done.
E*TRADE ( NASDAQ: ETFC ); now we are getting warm here. This is still quite a ways above the 200-day moving average. This just broke down last week. This is an EARLY pattern from what we saw here at Interactive Brokers ( NASDAQ: IBKR ). Do you see what I am getting at? So this breaks down, that was our first part, our Phase 1, we’ll call it, the breakdown. Now we are looking for a rally back to test this 50-day moving average and then we would sell as close to that as we can with a buy stop right up there. That’s what we are looking to do, right? This thing may have run its course. Remember look at the other stocks. They are all pretty weak and so this thing that we got on Thursday, guys, that could be the “Last of the Mohicans”. That is the last move up before this thing falls further.
So, frankly, at this point here is how I would do it: I would look and see where this stock is trading, it closed right around 61ish. If you were to short this stock now you would have about a 4 percent risk on this. You would keep your buy stop right up above the 50-day moving average and the way the group is trading I don’t think you get stopped out. So you would short the stock here and hopefully, on Monday, we will get a little bit of rebound to where you can get closer to this level and then short the stock. But ultimately I think this is going to be a short that makes you money. You are just really looking for the entrance and then don’t get greedy. If you get the stock that comes down to $55.00, $56.00 or so that is when you want to be covering short; or at least dropping your stop quite a bit so you are following it with a trailing stop.
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