How to find shorts on stocks which are not overextended on the downside | stockbee


How to find shorts on stocks which are not overextended on the downside

Similar to the concept of How to find breakouts on stocks which are not overextended , you can develop set of scans to find short breakouts on stocks which are probably just about to start a short move.

Again essentially you are looking at stocks which had rallied majorly in last one year and now running out of steam. Some minor adjustments are needed in the scans to achieve this.

Now this set of scans have been created using TC2000, but you can recreate the same in any other software once you understand the logic.

1 We are looking for long term strength. So the first scan will give you a way to rank stocks based on price change from 260 days low.
100 * ((C + .01) - ( MINC260 + .01)) / (MINC260 + .01) ( One year Growth)
We will take top 20% stock ranked by this scan. So in TC2000 you will take stocks ranked 80 or above on above scan.

2 We are looking for near term weakness. Near term I am defining as one quarter weakness. That is 1/4 th of 260, or 65 trading days.
(100 * (C1 - C65.1) / C65.1 <= 10)and C >= .80 * MAXC65 (quarter growth)
Which gives you stocks which have less than 10% price growth in last 65 days. Plus it is within 20% of its 65 day high price. Here the change is 20% of 65 high as against 10% for long scan.
So this condition gives you a pause/ consolidation within a high relative strength stock. Stocks with high relative strength can break in either direction. All high relative strength stocks at some stage reverse or have significant pullback. This happens mostly after everyone gets excited about a sector.

3 Breakdown condition. Now to above two scans we will add our breakdown condition of 4% down move for today on high volume.
( 100 * (C - C1) / C1) <= ( - 4) AND V >= 1000 AND V > V1

Now see the stocks meting this set of scan. Under good circumstances for short selling, you will find very good candidates in these set of scans. This gives shorts which are just about to breakdown after a long up move.

There are always opportunities in market for those who know how to find them. Enjoy your profits.........


Silver said...

In the above formula, when filtering for less than 10% price growth in the past 65 days, wouldn't the formula be (100 * (C1 - MINC65) / MINC65 <= 10 as opposed to using C65.l? If you use C65.l, you are looking at the price growth from 65 trading days ago rather than the price growth during the past quarter. What are your thoughts on this?

Chris said...

I was translating your logic into a script on to play around with and was curious what you had in mind for exit targets?

Profit target?
Max loss allowed?
When you would move on if it is flat lined?


Pradeep Bonde said...

By calculating growth from c65 you are getting congestion.

Pradeep Bonde said...

Stop at high from 2 days ago.

Risk on position 1% of equity

Time stop of 5 days. So if position will be closed in five days if it does not move 10%

Trailing stop once position has 10% profit of 10%

paulin said...

If you can let us know when you put a script up there. Would like to check it out myself...