Short Selling Q&A   View Select Entries from Our Mailbag. Also See Our Q&A Page.

Q: In your experience, what seems to be the best search parameters in order to search for "short selling opportunities" --it seems that there are always times good plays are hard to come by ....and there are a lot of "outside" parameters that interfere with a good run, but hardly nothing stops a hard down. Short sales are a minor portion of my effort and recourses, but at times, especially last year, invaluable. Thanks.

A: Short selling is difficult, but if done correctly, the gains can be swift and substantial. Your observation about hardly nothing stopping a down run on short selling is correct and very insightful. Two conditions that must be met for a good short:

1. Stock must be at least +150% above its 40 wk MA, e.g., if the MA is at $10, the stock price should be at least 1.5*$10 + $10 = $25. This can be searched for against our database.
2. Look for volume blow-offs, price gaps, or reversal days. Volume blow-offs happen on an extremely high volume day, e.g., the highest volume day since the start of the advance. The stock could also gap up in price. A reversal would happen if the stock closes at a price lower than the previous day on high volume. The best way is to look at a daily price and volume chart on our website.