Post on 27-Apr-2015
Winning Strategies forSelling Short
Toni TurnerAuthor of
A Beginner’s Guide to Day Trading Online
A Beginner’s Guide to Short-Term Trading(Dec. 2001)
What It Means When you sell short . . .
You borrow the shares from your broker(He borrows them from another clients account.)
You sell stock position (your account is “short” that stock), with the intent of buying back at a lower price.The difference between the two prices is your profit.
Why We Avoid Selling Short
Americans are optimisticIt’s mean to “kick the underdog”Risk is unlimited… loss could equal many times original stakeGetting caught in a Short Squeeze is
no fun!
Why Selling Short Fattens Your Wallet
The market falls at least 1/3 of the time—lately more!
Stocks drop 3 times faster than they rise
Profits are made quickly
What Makes Your Shorts Fall Down!
Go ahead, make my day . . .
What Makes Your Shorts Fall Down . . .
Distribution/supplyStock tops out after steep uptrend —exhaustion gap Market/Industry in downtrendCompany announces bad earnings, or news, read: “accounting irregularities”Indifference toward the stock
Two Shorting OpportunitiesWhat to look for on a daily chart . . .
An “overextended” stock trading high above its 20-day moving average.
A stock in a solid downtrend that is …! rebounding to resistance! breaking down from a consolidation pattern
Find an Overextended Stock
20 MA
Sell short here
A stock rolling into a downtrendand/or rebounding to resistance, then breaking down from a consolidation pattern
Sell Short
Stock is OverextendedWLP weekly chart
Stock is OverextendedDaily Chart WLP
Stock is OverextendedDaily Chart WLP with Bollinger Bands
Fibonacci Retracements(Possible support levels)
Cover short position
Convergence of Signals
Price pattern at top of Bollinger BandsRSI = oversold + negative divergenceDark Cloud Cover candlestick patternWeak volume at topsStrong volume on negative day
WLP 60-minute ChartConfirm daily chart signals
Falls below support
Sell Short
•Rallies to fill gap on low volume.
•Falls below support.
WLP Five-Minute ChartFine tune entry point
Trigger time!
PDLI Tumbles in Downtrend
Get ready to put on your shorts!
7/10
PDLI Weekly Chart Agrees
BTK.X Also TumblesGulp!
7/10
Convergence of Signals
PDLI falling into downtrend on daily chart! major support break! follows double top (intermediate pattern)
Weekly chart shows major support break + oversold on RSIBTK.X already in pig-ugly downtrend ☺
PDLI 60-Minute Chart
PDLI Five-Minute Chart
Gaps…watch volume!
Enter
Shortin’ the Q’sIt’s Easy! (Weekly Chart)
20, 50, 100 MA
Interest rate surprise
Shortin’ the Q’s
You can short on a downtickHAS to follow the NDX 100 futuresMoves at a reasonable, orderly paceIn this case, made a lower highDouble top on RSI (Gulp!)Broke 50-day MA
Shortin’ the Q’s
Sell short here
•Support break
•Weak market
•MA’s cross
Sell short here
RSI
•Support break
•MA’s cross
•Weak market
Shortin’ the Q’s
•Broke 50 MA
•Couldn’t make a higher high
What else?
•Candle resistance
Shortin’ the Q’sDay Trading
Gulp!
MAs: 12, 20, 50, 100
Fougettaboudit!
Shortin’ the Q’sDay Trading
Shortin’ the Q’sDay Trading
Eeeeeeeek!
Same signal--two time frames
Target Shorting Candidates
Target stocks: ! overextended ! completing reversal patterns on daily charts! In a downtrend
Weekly chart agreesIndustry chart agreesOverall market agreesMultiple time frames agree
Money Management
Look for next support levelAscertain protective stopFigure risk/reward ratio (1:3)Once in, set trailing stopTake profits before stock reaches prior support
Getting caught in a “short squeeze” is bad for your health and your wealth!
The Uptick Rule . . .Nasdaq: Uptick/Downtick Arrow is generated by movement in the Price of the Inside BidIf the the Inside Bid increases in price by 1/16 – Green Up arrow appears—an “uptick.”If the Inside Bid decreases in price by 1/16, then a Red Down arrow appears—a “downtick.”NYSE “Ticks” are created by the prints.
How to Execute
You may sell short at the BID PRICE on an uptick ONLYYou may not send an order to open a short position AT THE BID PRICE OR BELOW on a downtick.On a Downtick, through an ECN, you may OFFER to open a short position if it is AT LEAST 1/16th ABOVE the inside bid price.
Good Luck and Good Trading!
TONI TURNERTONI TURNERA Beginner’s Guide to Day Trading Online
A Beginner’s Guide to Short Selling
A Beginner’s Guide to Short-Term Trading
toni@tripointtrading.com