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This tutorial was originally titled “Winning Strategies for Selling Short” and was recorded at the Online Trading Expo
A Beginner’s Guide to SHORT SELLING
Toni [email protected]
Author of A Beginner’s Guide to Day Trading Online
©© CopywriteCopywrite 2001 Traders’ Library2001 Traders’ Library
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What It Means When you sell short . . .
You borrow the shares from your broker(He borrows them from another client’s account.)
You sell stock position--so 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 optimisticThe market has an upside biasIt’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
Stocks drop 3 times faster than they rise
So, profits are made quickly
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What Makes Your Shorts Fall Down!
Should I raise ½ or ¾ point?
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What Makes Your Shorts Fall Down . . .
Stock tops out after steep uptrend —exhaustion gapMarket/Industry in downtrendCompany announces bad earnings, or news, read: “accounting irregularities”Indifference toward the stock
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What 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 in a solid downtrend that is …
rebounding to resistancebreaking a consolidation pattern
Sell Short
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Stock is Overextended
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Convergence of Signals
Price pattern at top of Bollinger BandsFive days upRSI = oversold + negative divergenceDark Cloud Cover candlestick patternStrong volume on negative day
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BEBE 15-minute Chart
Falls below support
Sell Short
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SDLI Resumes DowntrendGet ready to put on your shorts!
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SDLI Resumes Downtrend
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Convergence of Signals
Jan. 31, SDLI can’t make higher highFeb. 2, breaks below support of 199Falls under 20 & 50 MARSI in downtrendOBV tankingNDX coincides
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SDLI 60-Minute Chart
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Sell Signal on 15-Min. Chart
Breaks support, RSI falling, OBV falling, fast MA crosses slow, strong volume, NDX futures, TICK + TRIN coincide
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Sell Signal on 5-min. Chart
Cover at close with 15 point profit!
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Shortin’ the Q’sIt’s Easy!
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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
Could short here, but still above 50-day MA
Sell short here
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Shortin’ the Q’s
Note Double Top!
Completes double top, breaks support, under MA’s, falling RSI, falling OBV, futures, market tanking!
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Shortin’ the Q’s
Different time frame—same short signal!
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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
On an uptick, only, you can sell short on the bid, offer, or anywhere in-between
You 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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Technique:Be 1st in New LineNot Last in Old Line
Prepare order entry screen to make offer short offer at 54 on ISLD.
Pull the trigger when 54 leaves the bid.
"RealTick™ graphics used with permission of Townsend
Analytics, Ltd. © 1986-2000 All rights reserved."
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Money Management
Set stop-loss . . .?Swing Trade: .25 over high of day?Day trade: .25 over high of entry
candlestick on 15-minute chart
Take profits . . .?Swing trade: 2 days down or next support
level on daily chart?Day trade: at support, or before close
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Good Luck and Good Trading!
TONI TURNER
A Beginner’s Guide to
Day Trading Online
©© CopywriteCopywrite 2001 Traders’ Library2001 Traders’ Library