Say company XYZ finished the trading day at 50 on a Monday and I believe the following day(Tuesday) that the price will fall. If I wish to short the stock when is the best time to place my order to sell short? Would it be before the close of the trading day Monday, or would it be early on Tuesday? Also how does after hours trading play into my decision? I plan on doing this from an Etrade account and would like to know what strategy would work best.
In your scenario your gain would be larger if you short before the close on Monday. IF you are right. There is typically a large movement in share prices at the open. So if you wait until Tuesday, and the stock does fall you miss out on a big part of the drop.
The disadvantage to shorting on Monday afternoon is that you can't be sure what will happen overnight and the effect on the next day's stock movement. Which makes it more risky. Personally, I only short in real time, when I can see the price action in front of me.
After hours trading may cause a price shift which may be reflected in the next days open. If you monitor AH action, you can use that to validate your assumptions.
July 4th, 2009 at 10:23 pm
Good points about after hours and premarket being able to provide some sort of direction, but sometimes the lack of volume/liquidity can paint a false picture.