Different types of shorts are played differently

For the purposes of trading it is useful to distinguish between panic selloffs and breakdowns of stocks that have become overextended by one method or another. Both types of shorts begin on a green to red strategy but there is an important distinction. Panic selloffs happen very quickly with high volume but usually reverse intraday and can become longs off the rebound. This perfectly describes NWA today and although I was horrible at predicting the reversal (I said 8.60's but dropped to lod of 8.25) this even more proves my point, that the more overextended the stock becomes on the short side the more reliable the reversal will become.  Although much has been discussed about shorting off of premarket leader highs, not much is discussed about the exact opposite move- the long rebound off the panic selloff. Make a calculation about where the reversal is expected to happen using ADR5 as support and look for confirmation of 5% off the lod for entry. NWA scalp from 8.35-8.70 is the kind of trade the some of the more well known traders would scoff at, but this kind of trade should be added to your roster to make you more versatile and ready to respond in a variety of situations. Trading short from breakdowns of overhyped stocks is a great play- if it is your only play you will do well- but it is kind of like a basketball player that only has a 10 foot jumper, get some other plays in the playbook to become more well rounded.

Of course panic selloffs are also great shorts- this would have been a great trade when it broke 9 but I didn't see it until it was around 8.80 and decided to wait for the long.  I was wrong about the reversal- but that is the good news! Any move beyond the expected just gives added confirmation to the subsequent upward move. Turns out there was a natural support in the 8.50- 8.60 range where NWA traded sideways for quite a while. Notice how the huge red volume spikes couldn't move the stock lower than 8.50. You should always calculate where you are in the trade in terms of dayrange unless there is a news event driving the action, a news event causes the dayrange support/resistance guideline to become invalidated.