Reason 9 for Using Stock MetadataReason 9 for using stock metadata statistics is to learn how to take advantage of clues found to trade short positions in the market.
Reason 9 continues with a controversial stock market topic, the use of stock metadata and its role in trying to time stock market trades. Selling stocks short implies the sale of stocks not owned by the seller. This type of day trading transaction is entered into by a person who anticipates the price of the stock to be going down. Once the price of the stock has decreased to the point where the person feels satisfied with the potential profit, a buy-to-cover transaction is submitted to buy the shorted shares and close the position. More information on using technical analysis for day trading when selling short can be found by going to Investopedia. Reason 9 will review a day trading strategy using stock metadata that people can employ to try and time short-sale stock trading transactions. It takes advantage of fluctuations in the price of the stock which in turn, offers multiple opportunities to make some small but quick profits. This technique is relatively simple to understand and it requires that you keep an eye on three things:
For reason 9, references will be made to the following metadata report:
You might find it easier to follow the explanations given by having your own copy of these files populated with the exact same stock price data. We will use the following modified screen extract (figure 9a) from that metadata report to explain this day trading strategy for selling short.
As shown in figure 9a above, during the time period from 10:00:00 to 10:14:59, 7.70 was the highest price reached by Ford shares. This amount was more than the highest price of 7.68 reached during the previous time period of 9:45:00 to 9:59:59. If the stock was sold short at 7.70 and then bought back during the 10:15:00 to 10:29:59 time period at the lowest price of 7.52, this would translate into an $0.18 per share profit. The example assumes the number of shares in this transaction to be 1,000. So after paying the brokerage house commission fees of $20, the potential profit from using this short-sale day trading strategy for that trade alone would be $160. And if you used this strategy repeatedly during the day and was able to sell short at the highest prices and buy to cover at the lowest prices during the following time period, you would have a $590 profit for the day. To repeat, in order to use this day trading strategy, the current high price must exceed the highest price reached during the previous time period. When this happens, it’s a signal to sell shares short with the intention of buying them back either during the current time period or during a time period that follows. Although it’s not always 100% guaranteed, by using this type of strategic approach, you can see when looking at figure 9a, the series of subsequent low prices are consistently lower than the high price (7.70) that occurred during the 10:00:00 to 10:14:59 time period. As a result, there were an ample number of opportunities to cover the short position taken this day by buying back those Ford shares sold. The start of a variation of this day trading strategy using stock metadata is shown in figure 9b below. It starts off with the first short sale and subsequent buy-to-cover transaction that results in a maximum potential profit of $230.
Then by continuing this same type of strategy for each time period that followed of consistently selling short at the highest price and buying to cover at the lowest price during the following time period, the potential profit for the entire day would add up to $2,030, the value previously shown in figure 9a. But regardless whether either the main strategy or the variation of the strategy is followed, it’s virtually impossible to consistently sell short at the highest prices and buy to cover at the lowest price of the following time period for each and every time period of the day. The main point for having presented these results shown for reason 9 is to illustrate the fact that if a person uses market timing and is willing to accept smaller profits, money can be made during at least one or more of the twenty-six 15-minute time periods during the day. Please note that holding a short position can be risky. If the price of these shares increases to a point where the value of the total number of shares is more than what was received when selling the shares short, there’s a definite risk of being forced to cover the position. This would mean losing money. So use short selling prudently. Using the example shown above, for the 1,000 shares of Ford sold short, each penny that the shares increase in value will translate into a loss of $10. So if you sold at 7.70 and had to cover your short position by buying the shares at 7.90, your loss we be $200 plus brokerage fees which we’ll assume to be $20. So the total loss would be $220. All this to say you must keep one thing in mind and that is if you sell short, it’s best to repeatedly take smaller profits rather than wait for the big one that may or may not come. Well we’ve now completed the review of reason 9 for using stock metadata for day trading and we’ll be continuing with reason 10: Return from Reason 9 to the Top 10 Reasons for Using Stock Metadata page for this site
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