Short Trading Note from Dan and Tony of KhronoStock PRO, Trading and Macro-Investment Subscription Service of KhronoStock:
The volume in the stock market has been very light recently. Many of our shorts are starting to work, and we feel they will continue to work.
We typically like to invest when the risk seems the lowest. Right now, with the low volume the risk is greater then it is when the volume is heavier. We will either go long the market if we sell off on high volume or will start to short heavier if the market moves higher on high volume.
Either way, we expect to have some very good trades very soon. Ultimately, we would like to see the market sell off on high volume and go long stocks that get oversold.
You are dreaming…
Why would you go long on a high volume selloff? That violates every rule I can think of. I high volume selloff combined with a VIX rise suggests panic. Can you catch a falling knife? I can’t.
Why would you short if the market goes higher on volume? That shows conviction on the part of the accumulators.
Your comment makes no sense to me whatsoever. Sorry.
Hi Amber,
Forgot to hit the reply button.
I think our trading philosophy makes perfect sense as good contrarian traders.
We long on high volume selloff because we are buying on the panic while everybody is selling. March was the perfect example and we made alot of easy money.
We short when the market goes up on high volume because again we are being contrarians we short while everyone buys. Thus we were able to make again easy money when DOW climbed all the way to 8900.
Our primary assumption is that the mass is ALWAYS wrong. Thus, we do just the opposite of the masses on a carefully timed manner enabling us to have a 90% success rate on our trades.
Of course our strategy makes no sense for the masses and it’s counter intuitive to them because the mass is ALWAYS wrong
No offense to anyone here, just trying to highlight one of our most important assumptions that the mass is always wrong and thus being a contrarian is our way to succeed.
Sounds to me like you are just scalping on some day trades against the trend. Nothing wrong with that, especially if we have enough volatility to swing us “good”.
I think our trading philosophy makes perfect sense as good contrarian traders.
We long on high volume selloff because we are buying on the panic while everybody is selling. March was the perfect example and we made alot of easy money.
We short when the market goes up on high volume because again we are being contrarians we short while everyone buys. Thus we were able to make again easy money when DOW climbed all the way to 8900.
Our primary assumption is that the mass is ALWAYS wrong. Thus, we do just the opposite of the masses on a carefully timed manner enabling us to have a 90% success rate on our trades.
Of course our strategy makes no sense for the masses and it’s counter intuitive to them because the mass is ALWAYS wrong
No offense to anyone here, just trying to highlight one of our most important assumptions that the mass is always wrong and thus being a contrarian is our way to succeed.
I believe you might have something, but a whole science of trading disagree with this thesis. Huge volume suggest that big institutions are either feeding the market with stock or accumulating heavily. They might want to shove the market higher to catch stops or start trend identifiers, but they can only do that when the volume is reasonably light. If they try to keep the market up running while it’s trading on heavy volume, eventually, they’ll go bankrupt.
Hi Loevquist,
When you say “but a whole science of trading disagree with this thesis.”, I don’t know where is this “whole science”.
Obviously, we are extremely successful using this thesis. On top of this thesis of course we have other proprietary tools to help us. So we definitely do not trade only using the volume indicator.
I don’t understand what is so counter intuitive about this basic contrarian approach. Take March for example, when the market sold off on multiple days and weeks with heavy volume and we suggested people to go long 3 months ago just 3 days before the actual bottom with SP500 reaching 666, didn’t that work out perfectly?
Hey tony
Of course that was not a bad call, but when I read your initial strategies it seemed so opposite to the strategy and models that I am using. If you look at it from a momentum perspective, which one the commenteres suggest too, I see your approach is quite reasonable, but still, I find it hard to employ directly into my own systems. Maybe you wanna tell us a little bit more about what indicators you are using?
The “science” I was talking about is the Volume Spread Analysis originally promoted by Tom Williams, I believe it was. Anyways, appreciate your contribution, often times I find thinking outside my own little black box is the best way to come up with new ideas ..
Loev
Hi Loevequist
While I can’t tell the specifics of our proprietary indicators
I can tell you that the fundamental difference between us
And others is that we don’t predict how stocks will do
But rather judge whether or not if the stocks move is efficient
Or not during the aftermath of the move.
If you think along that line you will see why we have such a
High success rate.
The wording was not perfect, but it makes sense. Momentum in any direction is more difficult to continue after very heavy volume. Otherwise, it is like trying to swat at a baseball in the same direction that it is traveling…..not too easy to do.
The key is understanding the impact and the definition of Momentum on the market.
- just my two pennies worth, but it does fall in line with the way I trade.
disclosure – I do happen to be a paid subscriber to Dan at short-stocks.com – I don’t take every trade advice but it is worth every cent – a no branier.
Has anyone criticizing this approach looked at the charts? I was skeptical too when I first saw this post, but it’s not that far-fetched. Look at a Dow daily chart over the past couple of years – 2/27/2007-3/5/2007, 1/16/2008-1/23/2008, 9/19/2008, 10/10/2008, 2/27/2009-3/20/2009 are examples of it working. Of course there are times when it fails – 9/15/2008-9/19/2009 for example and others – but there is no foolproof indicator.
high volume on down moves when the market has already came down alot is different to high volume on down moves when the market has risen alot. it can indicate a change in trend. who with the big/right money would be buying now when the would have brought alot in march
a significant increase in volume on a down move if the market has already come back 15% then i would agree with that, volume is more likely to suggest and upmove
I am sure you guys have seen this:
http://www.prweb.com/releases/2009/06/prweb2537224.htm