winning strategies for selling short
TRANSCRIPT
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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)
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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.
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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!
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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
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What Makes Your Shorts Fall Down!
Go ahead, make my day . . .
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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
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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
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Find an Overextended Stock
20 MA
Sell short here
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A stock rolling into a downtrendand/or rebounding to resistance, then breaking down from a consolidation pattern
Sell Short
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Stock is OverextendedWLP weekly chart
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Stock is OverextendedDaily Chart WLP
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Stock is OverextendedDaily Chart WLP with Bollinger Bands
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Fibonacci Retracements(Possible support levels)
Cover short position
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Convergence of Signals
Price pattern at top of Bollinger BandsRSI = oversold + negative divergenceDark Cloud Cover candlestick patternWeak volume at topsStrong volume on negative day
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WLP 60-minute ChartConfirm daily chart signals
Falls below support
Sell Short
•Rallies to fill gap on low volume.
•Falls below support.
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WLP Five-Minute ChartFine tune entry point
Trigger time!
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PDLI Tumbles in Downtrend
Get ready to put on your shorts!
7/10
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PDLI Weekly Chart Agrees
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BTK.X Also TumblesGulp!
7/10
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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 ☺
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PDLI 60-Minute Chart
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PDLI Five-Minute Chart
Gaps…watch volume!
Enter
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Shortin’ the Q’sIt’s Easy! (Weekly Chart)
20, 50, 100 MA
Interest rate surprise
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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
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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
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Shortin’ the Q’s
•Broke 50 MA
•Couldn’t make a higher high
What else?
•Candle resistance
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Shortin’ the Q’sDay Trading
Gulp!
MAs: 12, 20, 50, 100
Fougettaboudit!
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Shortin’ the Q’sDay Trading
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Shortin’ the Q’sDay Trading
Eeeeeeeek!
Same signal--two time frames
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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
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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!
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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.
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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.
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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