Originally Posted by BobK
Example: MU has not been performing well and their earnings report was bad. I shorted at the open @ 5.70 and it shot up to 6.65. Had I waited for confirmation before trading I could have shorted @ 6.65. You have been posting almost exactly what I said in the first post. If this explanation doesn't clear things up call me.
Maybe I'm just looking at it differently than you. In your situation what type of confirmation would you have been looking for? I assume the reason you got in before any confirmation is because you thought the bad earnings would drive the stock down. By getting in at that point you are maximizing your gain potential because if you are right you will have gotten in at the beginning of the move. If you had waited for confirmation (my opinion of confirmation being a strong downward move or broken support) you would have seen there was no confirmation avoiding the trade and increasing your win loss ratio. Not that shorting an overbought stock is a bad trade but, I don't see what confirmation you would of had when the stock moved in the opposite direction on strong volume. Shorting at 6.55 would be trading without confirmation of the downward move.
The example I think of is something simple like buying a bounce off support. You can either buy before the bounce getting in right at support or buy after the bounce is confirmed at a higher price.
By buying at support you get in at the very bottom and increase your gain potential. If support is broken you sell right away limiting any major loss. You may have more losses than wins trading this way but, your losses will be small and your gains big. Done right your few large gains will out weight the several small losses.
Now if you were to wait until the move is confirmed you will have gotten at a price higher than support so right off the bat your gain potential is less but, since the move was confirmed there is a better chance of you being on the right side of the trade. Issue is if the stock reverses when will you get out? I would think you would wait until the bounce completely fails (support is broken) which will leave you with a bigger loss than the trade above. If you decide to cut your losses sooner because the move isn't taking form then like the trade above you will end up with several small losses and a lower win/loss ratio and be right back at square one.
I don't know if that clears it up a little.