Trading Basics About Selling Short
Stocks
Most traders and investors learn how to buy stocks then
spend most of their time looking for great stocks to buy and trade for a few
days, or to invest in for many years. However, as soon as a Downtrend market
correction starts many traders and investors do not know what to do. They
either hold onto their stock and lose 50-80% of their gains, or they just sit
and wait hoping the Correction will end soon. What they are missing is vital
information below, in the list of Sell Short market tips.
There is a total lack of preparedness for Downtrends and
missing key information within the list of Sell Short market tips can lead
to large losses, anxiety, and frustration. For long term investors, this can be
devastating and can take years to recover.
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For Retail Traders not knowing how the Downtrend behaves, why it moves
differently than the upside, who sells short, what strategies work, and how to
interpret indicators when stocks are trending down increases the risk of
whipsaw trades, poor trade results, and an eroding capital base. Confidence
deteriorates when there are continually losing trades or weak trades, due to
needing a foundation regarding the basics about downtrending markets.
Here is the list of Sell Short market tips:
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3. Market Participants
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Martha
Stokes CMT
Here is the list of Sell Short market tips:
1.
Tops
Tops
develop faster nowadays than even a few years ago. High Frequency Traders can
create Sheer Cliff Tops™ that plummet double digit points in a single day.
2.
Quiet Rotation™
Quiet
Rotation™ by the giant and large Institutions is intended not to disturb the
trend, and they do sell even while the stock moves up. However as smaller lot
buyers who have lower capital bases slowly stop buying, the trend actually
“bends” under the weight of the giant and large lot rotation selling. Rounding
trendline patterns are more prevalent nowadays due to this condition. These
changes in the balance of power between buyers and sellers can be seen in
indicators. The "Balance of Power Indicator" reveals this candlestick
pattern.
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3. Market Participants
Only
3 Market Participant Groups actually Sell Short. They are all use Technical
Analysis except for the High Frequency Traders which use news algorithms to
find negative news to sell short. Technical patterns are more defined due to
the rising number of Professional Traders selling short these days.
4.
Indexes
A
Market Correction is not always a big Downtrend on the Indexes. Since the Dow
30, S&P500 and other indexes are a formula that derives a base value for
that index, a Correction may not be a true Downtrend for these indexes. Instead
the indexes can and often do move in a wide Trading Range, which is harder to
interpret if a trader does not understand how a Trading Range Market Condition
behaves.
5.
Entries and Exits
Entries
and Exits for Selling Short must be extremely precise. That means Candlestick
Patterns for both entries and exits must be specific to Selling Short.
Using indicator cross-overs and other outdated signals often create more
whipsaw trades than profitable trades.
TechniTrader
is "The Gold Standard in Stock Market Education." Go to the TechniTrader Learning Center and watch the Candlestick Patterns Webinar to experience for yourself the
excellence of TechniTrader education.
To
be successful during a Market Correction traders and investors need to learn
how to read the downtrend all of its subtle nuances and patterns as
introduced in the list of Sell Short market tips.
Summary
Traders
and investors benefit by understanding how, why, when, and what constitutes a
Bear Market, an Intermediate Correction, or a brief Retracement. Using the
proper analytical tools and honing Spatial Pattern Recognition Skills™
dramatically improves results for both short-term traders and long-term
investors.
I
wrote another article about Selling Short with chart examples CLICK HERE.
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Trade
Wisely,
Chartered Market Technician
Instructor and Developer of TechniTrader® Stock and Option Courses
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