Most investors use a 7-8% maximum stop loss. Always adhere to that first. On the long side, if the stock violates its 10 day moving average (dma) before it gets to that level, it depends on a number of factors as to whether you decide to keep your position or sell it.
Such factors include the strength of the general market and the quality of the stock. On the other hand, if you are showing a profit and the stock violates its 10dma in 7 weeks or less, you should switch to using a violation of the 50dma as your selling guide. If the stock does not violate its 10dma for at least 7 weeks, then you can use a violation of its 10dma as your sell point. More on this in our investor education section at http://www.virtueofselfishinvesting.com/faqs
When setting stops for any short-sale trades we outline in our reports at www.selfishinvesting.com, keep in mind that we always use a maximum 3-5% upside stop on short positions, regardless of where the moving averages are.
Sometimes, if one prefers to be more aggressive or more active, using the high of the day on the day you are shorting into a rally can be effective, but this all depends on one's own personal risk profile. "Know thyself!" is the first rule of trading.
Also, the purpose of all our email alerts is to outline a situation or trade for you, and then let you decide how to handle the trade given your own specific preferences and risk tolerance. We all have our own unique styles, and we believe that learning by doing is the best path, while handing you a fish to filet, as it were. We can hand you a fish, but you had better know how to cook it.
If you are new to short-selling, you should read "How to Make Money Selling Stocks Short" or buy the new Investors Business Daily short-selling course, we think it is invaluable, especially when Bill O'Neil annotates the short-selling examples himself.
We don't make a dime off of either, but we believe you should buy them both. And as you are learning, take small positions. Only invest maybe 10% of your total account value or less on a trade. Leave the 400% intra-day "up against the wall" stuff to Gil Morales.
The market's rally over the past few days as of October 14, 2011 illustrates quite clearly how the short side can cause one headaches, but persistence is often required. Not many have the requisite psychology, and some might say you have to be downright crazy to short.
In that regard, Gil Morales might qualify while Dr. Chris Kacher (Dr. K) takes what some might consider a more "sane" approach and prefers to remain less aggressive, using mostly ETFs on the short side.
All we know is that if you are going to play the short side then you should have some large "cojones," although we might agree more closely with Betty White when she discusses what part of the human anatomy truly deserves to be associated with concepts of "toughness" or a swashbuckling nature: http://www.goodreads.com/quotes/show/442216