The other day I received a question from a new reader, Mortimer, asking:
How did you identify SIR as a short candidate? And having done so, how do you determine your entry point?
The answer is that it first popped up on one of my scans. Unfortunately I'm not sure which scan it was, but it looks like it was either my Fibonacci retracement scan of the bearish harami scan. Once a stock shows up on a bearish scan the first thing I do is check where the stock is relative to its Multiple Moving Averages (hmm, I guess I need to go back and fix some old pages that don't display very well with my new layout). If it's above the averages, meaning the trend is up, I just move on to the next stock. If it's below the averages, then I'll look at some other indicators (Bollinger Bands, On Balance Volume) to decide whether or not to put it on the list. Actually, that's an over-simplification. It could be above the short-term group but below the long-term group and be a great short candidate. But I'll keep this answer simple.
Entry for all of my trades, long or short, is upon confirmation that the stock is moving in my anticipated direction. I determine that by the stock trading below the previous day's low for shorts, and above the previous day's high for longs.
