Q&A

Since You Asked

with Don Bright

Confused about some aspect of trading? Professional trader Don Bright of Bright Trading (www.stocktrading.com), an equity trading corporation, answers a few of your questions. To submit a question, post it on the Stocks & Commodities website Message-Boards. Answers will be posted there, and selected questions will appear in future issues of S&C.

HARD TO BORROW?
I have been trading for about six years. I just now have been able to short stocks, and don’t understand a couple of things. Sometimes when I try to sell short by placing the order at the bid price, I get an error message that says “Hard to borrow” or “Contact order desk.” It is my understanding there are no longer short-sale rules, something like uptick rules. Why would I care about something being “hard to borrow”? What does that even mean? Thank you for your years of giving advice at Stocks & Commodities, I really appreciate it.
— gatortrader

Thanks for the kind words! First, for decades we had the uptick rule to consider when selling shares we don’t already own (selling short). This means that we must sell the stock at the offer, or at the last price increase versus hitting bids, thus risking running the stock price down.

Your broker/clearing firm needs to have in its inventory the long shares of the stock you shorted. If they don’t, they must borrow shares to comply with their obligation. If they don’t have the shares, they’re asking you to “borrow” the stock through them. If the stock is illiquid or “hard to borrow,” then they advise you to contact them. Hope this helps.

HAVING A “FEELING”
I have a question for you about psychology. You have in the past referred to the psychological aspects of trading as being the most important part. Are you saying that all traders should become fully automated to guard against their own mental pitfalls? I often catch myself violating my own rules, even when I have a program to follow. Any suggestions?
— Jim Wells

Yes! Remember, “psychology” refers to everything you do, all day long. I’ve seen many traders simply turn off their programs when they had a “feeling.” I am a big fan of automation, all the more tools for traders, but I don’t necessarily encourage a hands-off approach, either. There are so many factors to consider with each order entry, it makes sense to keep your eye on these factors and make some adjustments when necessary. But some basics apply. I’m going to share a few things I’ve heard from Cash Coyne, who has been a Bright trader, manager, and instructor for 15 years (and incidentally, that is his real name):

Time to pay attention! The right mindset will make you or break you as a trader:

And here are my personal favorites. Read these, and tell me you haven’t said many of them to yourself over the years. Thanks to Jeff Foxworthy and again to Cash Coyne:

And in all seriousness, develop enough confidence in yourself to trust your decisions and alter your thinking when you need to. Over the years I have been involved in some serious negotiations, both business and personal. Whenever I catch myself either getting mad or overreacting, I try to postpone the decision at least overnight. If you’re going to change your entire approach to the markets, then give yourself some time to do it right. If you’re changing your trading plan, try to keep the good stuff and just modify the things that don’t seem to be working. Remember the market is fluid, as your mindset should be — always adapt and modify as needed.

Originally published in the November 2011 issue of
Technical Analysis of Stocks & Commodities magazine.
All rights reserved. © Copyright 2011, Technical Analysis, Inc.