Looking Short Silver after Parabolic Move

By Apr 11, 2011, 9:26 AM Author's Blog  

I mainly target gold when trading precious metals, but silver has obviously grabbed the limelight by outperforming over the past few years. This morning gold is pulling off but silver has once again rallied to all-time highs. I’ve gotten involved trading silver more recently, including a “cute” short back around March 7th-10th.

While I am not often in the business of trying to short parabolic moves, I feel this is another opportunity to get great risk-reward in a cute silver short trade. If you’re long silver for a swing trade, it would be prudent to take a large portion of profits into this strength. If you are flat silver, don’t chase a parabolic move like this.

(click to enlarge)

There are two ways I see to approaching this trade:

Strategy #1
You can take a three tier approach and systematically short from here up but you will have to be willing to take some pain and you need some time to trade out of it. The first tier of this trade would be anticipatory in nature, get short first around $40.20 on the iShares Silver Trust ETF (SLV) and then map out plans higher. But don’t add tiers too quick and get too much size.

Strategy #2
If you are very risk averse, you wait for silver to put a 15-30 minute high in and then short vs. that high and use that as your stop. Next, look to add a tier if it breaks below and holds below Friday’s highs $39.90. If you use this approach, you know your stop and risk.

A lot of shorts have been squeezed on silver’s relentless climb, and this trade is not for the faint of heart. I will try and use the tier approach in my swing account and use Strategy #2 in my cash flow account. This will be a very fluid trade so make sure to stay tuned in the Virtual Trading Floor as I work through this trade.

Disclosure: Short SLV

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