winning strategies for selling short

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