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US 500 - Potential Shorting Opportunity

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The price action is supporting my short trade as it is currently trading below and has crossed in order that it happened:

  • 200 DMA
  • 100 DMA
  • 50 DMA
  • 20 DMA

As soon as it crossed the 20 DMA, it was my signal that a short trend was firmly established and this was going to bring more capital and speculation to the short trade. One must remember that as the 'long' trend was one of the largest in US history there will be a lot of large 'long' positions. As these begin to unwind and the 'long' positions begin to liquidate if one adds 'short' positions to the equation then one can see exactly how big this 'short' trade could be. It could be the mother of short trades with lots of my favourite word - 'Ampllification'

Volume plays an important role along with price action and I am seeing the following:

  • The volume indicator is showing spikes in volume during downward price behaviour

Momentum is another useful indicator and it is showing in favour of downward prices and you will be able to see that the 'red' is more amplified than the 'green'

I have kept my analysis simple and easy to understand and hopefully some of you on the IG Community find it useful.

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@elle,

No problem. 

So far all my live trades in 'Short' US 500 and 'Long' Gold and Silver are all in profit and doing rather well.

I am currently 50 points in profit (obviously the leverage amount per point I shall keep to myself as I need some privacy) on this 'short' position on US 500 which I opened only today. 

Sometimes too much analysis and too much overthinking can mean that traders miss fantastic trading opportunities. It passes them by whilst they analyse, think, analyse again, come up with reasons why not to trade, etc. 

I use my experience and knowledge but then I use my 'instincts' and 'gut feeling' within the decision making process once all my indicators are in place to confirm a potential trending opportunity. One must not underestimate the importance of 'instincts' and 'gut feeling' which will come with knowledge and experience in trading such opportunities and economic conditions.

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I think you are actually starting to set a trend yourself @TrendFollower. I have never looked at the 500 only because the numbers seem so small. You posting a live trade is brilliant for newbys like me. This one is a bit late for me though. My set up would have indicated shorting after exiting from the cloud and a low RSi but not below 30. I would have definitely shorted 2682 on the close of 5th Dec and I'd still be biting my nails now. Right now I would be concerned about some sort of retrace (which will probably never happen and another trade fades away for me) and if it looks good on my set up, I will hop on board. Thanks for bringing this one to the attention of the community.

US 500_20181220_19.34.png

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shorts will want that red zone to hold. I think it will be breached , target at least the 50%

Capture 500.PNG

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@Nelsy-Boy,

In my experience it is never too late to go short on new 'lower lows' and never too late to go long on new 'higher highs'.

When you state the numbers seem small I take it you mean points? If so then that is where leverage can be used and you open +2, +5, +10 positions depending on your risk tolerance, risk profile and of course capital allocation per trade strategy. 

I am not suggesting you are right or wrong. That is for you to determine. But ask yourself this question, why do you think you are late? Who says you are late? When I trade a trend I will exit at some point but this will be when the trend reverses and not before. So I will be in this position as long as it takes. I only entered this position earlier today. So why is it late for you but not for me?

We could be about to witness an almighty stock market correction and this may only be the beginning. With leverage there are a lot of points to gain so I do not understand any strategy that stops a trader from entering a potentially profitable trade which is trending strongly.

I will trade an opportunity should it present itself. Whether that asset be Cryptocurrencies, Commodities, Indices, FX, etc. It does not matter what the asset is. It is the trend and profit potential based on risk that I am trading. Also I am trading with the trend rather than against it. It is the 'middle' bit I want and the bigger the middle bit is the better for me. 

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@TrendFollower you are more experienced than me. I take on board your point on leverage, thank you. As for the “late” trade, I am always wary of a retrace, especially when there has been a period of downward movement. I’m a nervous newby, still finding my feet but really appreciate your comments. I will stay watching for the time being.

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@Nelsy-Boy,

A note of caution is that use 'leverage' wisely and make sure it fits with your 'risk management' strategy in your trading plan. 

You are right there could be a retrace and this is a risk on this trade. 

I think watching price action daily on an asset you are interested in trading and where you have identified a strong trend is a great learning curve. You will live and breathe the asset's price behaviour and get a very strong feeling of any sharp movements and why it is behaving the way it is. You will be able to link any fundamentals to the price movement and it will really help you tune into the potential trade.

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First of all there is a wise saying, "Never Bet Against The Trend". To support this there is another famous yet cheesy saying, "The Trend is Your Friend". This is until the 'bend' of course which could represent a trend reversal but not necessarily and that is for another post more nearer the time. 

So how is my live trade doing that I am sharing with the IG Community?

At the time of writing this post my 'short' on US 500 is doing rather well. It is up well over 70 points. 

@Nelsy-Boy was worried about trend reversals. This is a valid point he makes. However, I tend to be more aggressive on short trades as from my experience short trades which are strong and they must be strong tend to move very sharply and yes there will be slight upward movements along the way but in general until a bottom is found it will continue moving downwards. Just look at my short trades on Orange Juice and Lumber this year. Also look at Oil and other indices that are trending strongly downwards.

This is where experience is vital of shorting markets. When I finally exit this trade which I will at some point as the trend has reversed then I will be considering going 'long' on this trade to make money on the way up. This is an example of making money when an asset is trending upwards and downwards. However, it all depends on how strong the trend is at the time. If there are other strong trends at the time then I may choose just to take profits and simply move on. 

I tend to avoid getting involved in assets that are trending sideways. These would merely hold up my capital in a trade which is not making me any money.

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@TrendFollower I am pleased to see all is well with your trade. How do you feel about leaving it open over the weekend and also the Christmas break. There is some US indices figures out on 24th for example.

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On 20/12/2018 at 21:52, TrendFollower said:

The US 500 which is the (S&P 500) is an attractive potential shorting opportunity. 

As many of you know I like to be as open and transparent as possible. I like to keep things simple and really add significant value to the IG Community with real live trades.

I have today opened a short position on the US 500 at 2506.91 via IG's Spread Betting platform. I should get daily credit interest as well - 😉

Why did I pick this to short ahead of the other indices? Well first of all it has lower margin requirements than other indices. This is extremely important when one is adding to short positions as the price continues to move downwards thus trying to maximise profits. Also the trends seem similar when comparing it to the Dow so why use up extra capital on margin requirements?

Again I am sharing some of my live trades with the IG Community and will share my views, thinking and rationale behind any decisions. I will not hide behind complex analysis and complex theory that many may find difficult to follow or understand.

@TrendFollower

'I have today opened a short position on the US 500 at 2506.91 via IG's Spread Betting platform. I should get daily credit interest as well - 😉"

"You quote will receive daily credit interest",

Could you elaborate,when shorting, we will still receive credits,what kind of credits that we will receive?

As what i encountered, dividend that need to be paid, is quite costly, if you kept long term,not to forget the funding charges too.

Thank you for sharing.

Cheers

hart

 

 

 

 

 

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@Nelsy-Boy,

I feel very relaxed about leaving the position open over the weekend. As I am trading with a 'strong trend' then I am comfortable leaving the trade open over the weekend as oppose to trading against the trend or not a strong trend then it would be possibly a different decision.

In terms of Christmas break then I am monitoring the price action daily so if I feel I need to close the position before the Christmas break then I will but if there is no need as the position is hugely profitable then I shall keep it open over the Christmas break. I will let the success of the trade determine my decision as one of the key traits of 'Trend Following' is to let your winners run and not too take profits too early. 

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@hart,

Thank you for brining this to my attention. This is the first time I have shorted indices. I have just checked my statement online on IG's platform and it shows:

  • 'Short Interest' that I am paying IG.
  • 'Adjustment for Dividend in US 500' that I am also paying IG. 

So @hart I think you are right. I have not received any credit since I opened the 'short'.

Yes, the charges can be costly but I never let the costs be a primary reason as to whether to enter a trade or not. If the trend is strong and the trade is right then the costs will look after themselves. Nothing is free in life. If you want to make profits then there will be costs and fees to pay. I am comfortable paying IG's fees and costs for the opportunity to profit from trades. I think the costs only really become an issue when you are trading against the trend or the trade goes against you and you do not cut your losses quickly. If you hold a position that you should not then absolutely the costs are an issue as it will eat into your capital daily.

No problem. I am happy to share.

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So the market is closed and my position is open.

At one stage yesterday evening I was up 100 points. I finished being up 87 points. 

I opened this trade on Thursday so it has been open only for two days but an excellent start. 

 

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My short trade on the US 500 is up a staggering 140 points in just over two trading days.

Yes, that is right just two trading days as the market was closed over Saturday and Sunday. I have made my trading decision based on very simple and basic 'Technical Analysis' which is supported by 'Fundamental Analysis'. There has been nothing complex in how I have arrived here. I have shared it on this post 'Live' with the IG Community for all to see my thought process behind the decision making.

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After what I personally think was a 'short covering rally' of gigantic proporations yesterday I have taken the opportunity to add to my short position. I see 'Lower Lows' being formed which is extremely important when trading a strong trend with a heavy downward bias. Also, I like to see 'Lower Lows' to confirm the short trade I am executing. 

I added another position to my short trade at 2456.77.

So my two short positions on the S&P 500 are at the following prices:

  • 2506.91
  • 2456.77

I will add to positions as the price moves in my favour 'pyramiding' upwards/downwards depending on whether I am long/short and building up positions to maximise my profits.

There is nothing quite like the IG Community following a live trade from an IG Community Member. I hope the IG Community take advantage of this which is being offered to them for 'free' at no cost to them. 

I will now see if we have any similar large 'short covering rallies' going forwards as they may provide opportune moments to add to my position. 

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On ‎20‎/‎12‎/‎2018 at 19:56, elle said:

shorts will want that red zone to hold. I think it will be breached , target at least the 50%

Capture 500.PNG

 

Capture es.PNG

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Some extreme volatility at the moment. Some of the most I have seen over the past few days on the S&P 500. I think this Christmas period will be very volatile with less volume. This seems like it is a massive short covering rally which is likely to be bigger than normal due to sharp and large recent drop downwards. 

 

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There are few points I would like to make regarding this short trade:

  • The 'Volume' on down days is higher than volume on up days
  • The 'Parabolic SAR' is supporting a short trade
  • The price is below the 20, 50, 100 and 200 DMA. The 20, 50 and 100 are all moving downwards and the 200 seems to be approaching that type of directional movement
  • Momentum is supporting a short trade

However the current risk on this short trade is that the rally is so big that it triggers my stop loss before the next leg down. Normally from my experience all major downtrends in major markets will look for a 'double bottom' and price confirmation which has not happened yet. I would be surprised if the recent low is not at least tested and could well be breached. 

The one thing I am weary of is not to listen to the media as they do have a 'bias' and I must ensure I ignore the 'market noise' and ignore what the 'so called' experts are predicting and allow the price action to dictate any decision making going forwards. 

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  I think your trade was a decent idea but on 26th we tested real support and bounced higher off it. Since then Algo's have taken it higher for two days now. We tried to come off a little yesterday but the weight of end of day buying was large. Personally I think we can bounce higher for 5-10days into the New Year which will then give you a better entry point. The FANG stocks are helping to drive the short covering and everyone got a bit spooked about that flat bond yield curve which in the past has forecast a recession. You can now see that curve steepening up 2/10's.There may well be a bigger dip coming in January/February however but it might get painful for you to hold a short until we spike higher. 

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56 minutes ago, Stewart said:

  I think your trade was a decent idea but on 26th we tested real support and bounced higher off it. Since then Algo's have taken it higher for two days now. We tried to come off a little yesterday but the weight of end of day buying was large. Personally I think we can bounce higher for 5-10days into the New Year which will then give you a better entry point. The FANG stocks are helping to drive the short covering and everyone got a bit spooked about that flat bond yield curve which in the past has forecast a recession. You can now see that curve steepening up 2/10's.There may well be a bigger dip coming in January/February however but it might get painful for you to hold a short until we spike higher. 

Great insight. Welcome to the Community! 

 

Amazon released a serious set of figures the other day showing a good increase 5%+ in sales which was a surprise given most data points to declining retail. That’s obviously just high street right now... 

love the bond analysis as well. Someone get this post on the front page! @JamesIG

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@Stewart,

My trade was going great until the large rally the other day. What I did not factor in was the magnitude and size of the rally. To be honest due to the sharpness and quickness of the drop I should have expected such a large rally. I think the longer term trend is downwards. Yes there may be a few days until we hit 2019 where there will be lots of profit taking, short covering and even possibly new longs entering the market. This will cause the price to appreciate which is expected. The bigger and sharper the downward trend then bigger the relief rallies are going to be. It will require 'nerves of steel', patience and a clear strategy with discipline to navigate through such extreme volatility. 

Yes, I agree with you that it may be painful to continue to hold but I intend to hold until the trend clearly reverses. If this was to happen then I will accept that I got the trade wrong and move on. I will let the price action determine my actions and we are not at trend reversal stage yet. It could be that my trade is correct but my timing is wrong. You can have two traders trading the same asset and both have different positions and be right. Anyone long just before the huge increase would be correct in a short term or day trade.

I think the volatility is extreme at the moment and the price swings are becoming more frequent in this volatile period. Would it have been better to wait until after the New Year and then enter? Possibly, but I saw a good entry point which it was until the large 1000 point upward Dow move took place!

I am living and breathing the price action at the moment on this trade as it is my biggest risk trade but also the greatest reward trade. From a risk/reward perspective the profit potential per point using leverage is very attractive.

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2 hours ago, TrendFollower said:

@Stewart,

My trade was going great until the large rally the other day. What I did not factor in was the magnitude and size of the rally. To be honest due to the sharpness and quickness of the drop I should have expected such a large rally. I think the longer term trend is downwards. Yes there may be a few days until we hit 2019 where there will be lots of profit taking, short covering and even possibly new longs entering the market. This will cause the price to appreciate which is expected. The bigger and sharper the downward trend then bigger the relief rallies are going to be. It will require 'nerves of steel', patience and a clear strategy with discipline to navigate through such extreme volatility. 

Yes, I agree with you that it may be painful to continue to hold but I intend to hold until the trend clearly reverses. If this was to happen then I will accept that I got the trade wrong and move on. I will let the price action determine my actions and we are not at trend reversal stage yet. It could be that my trade is correct but my timing is wrong. You can have two traders trading the same asset and both have different positions and be right. Anyone long just before the huge increase would be correct in a short term or day trade.

I think the volatility is extreme at the moment and the price swings are becoming more frequent in this volatile period. Would it have been better to wait until after the New Year and then enter? Possibly, but I saw a good entry point which it was until the large 1000 point upward Dow move took place!

I am living and breathing the price action at the moment on this trade as it is my biggest risk trade but also the greatest reward trade. From a risk/reward perspective the profit potential per point using leverage is very attractive.

Hi this is my first post! :)

Totally agree I don't think this rally changes anything, we are in a bear market... and will last into the new year... it Just takes a tweet the Donald Trump to spook investors! and to more uncertainty around US/China trade and oil prices are cause for concern so your position in the US 500 is in favour for the start of 2019 as there's nothing to cheer about economically.

I'm Short on Oil which is definitely a winner for some in the short run! especially if you entered in October however I entered at $55bbl aiming for $50 however it tested the level before rebounding to $55 but im optimistic this will come down as supply is still uncertain, Plus I'm getting paid interest for being short which a little bonus for holding over the short/medium term, Looking at closing... my position end of January - February but will be reviewed how the the economy is feeling. 

The Dow could test 18,000 - 20,000 if we still don't improve on the US Shutdown, FED fears, Trade wars, Brexit and if we get weak US consumer data.

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