lines)
2) Correct short entry (intraday, horiz. line)
3) Correct short cover area (above ?-Jlay support)
 Putting it All Together: Your Shorting Trading Plan & Skillbuilding
 
Your Daytrading Short Game Plan: Short Risk/Trade Management Plan:
What stocks will you plan on locking for What stop losses will you use, Maximum, per trade (circle)?shorts in, on a regular basis (your "core
shorting basket")? = 1/8th- 1/4 point (close trading, scalping-style)
+ 1/4 point (two-spread cover stops); = 36 - 1/2 point (wider stops)Tickers: * 1/2 point or more (do NOT do this!) Keep all stops < 1/2max
 
How Many Shares Will you Short in each trade (circle) ?
 
= 100 shares (best for new traders, and for leaming)
= 200-300 shares (after you've got some practice and are doing >50%)+ 300-500 shares (average daytrading size, after you're doing well) >500 shares (for experienced, pro traders only)
 
What types of short trades do you thinkyou'll try to do, primarily? (circle)
+ Losing 2-day support (best) Which of these Shorting MISTAKES will you AVOID (circle) ?«Intraday range shorts (ok)
+ Shorting momentum tops (risky, for pros only) * Trying to guess tops and short momentum runners making new highs+ Other (only highly experienced traders should atternpt these types of shorts)
* Shorting too many shares at first, over 300Arade, in your first 50 trades* Trying to short stocks that your broker doesnt have shart shares forNotes: + Shorting without clearly understanding the best Order Routing choicesfor you to cover with (I prefer ISLD and SOES limit orders)
 
 
 
1 i i Back toModule Shorting Skills for Active Trader: wenuiies
>> Module Five: Activity 1 -"Your First 10 Open Shorts"
This actmity will help you leat to correctly identify which stocks are good for open short plays.
Remember, apen shart means il’s a stock thal you enter @ short sell trade for from 9:30-9:45 cr so.
Use a link like this one to see the day's %gappers. Your "screen" should be for stacks that have gapped
up over 20.30% on premarket volume of 40K shares or more, and are statting to sell off on the open.
Avcover stop loss should be no more than 2-3 spreads up from your entry.
You can also look to short % gainers at around 10am or so, look for stocks with at least 500K volume
that are up over 20-30% on the day for these.
The other “screen” is for stocks that have gapped down 3.5% on the open and are making new 2-
day lows.
* You will scon learn that setting your stop losses and profitable exit targets is the Most Important partabout shorting, just as with any trade.
+ For this open short practice activity, | want you to keep track of your profits and losses on the 10trades so you can see how you'd de in a live trading situatation.
* Please note that | have a reason for setting the criteria | do - da not make exceptions on the rules (eq
do not consider an open short on thin volume, eq under 10K volume, to be significant) ... Try my
techniques with discipline and see how well they work for you.Stochastic reversals are also helpful poco Sf finewatrat =) PI[¥ &| See) A
in locking for timing open short
 
  
opportunities. ‘
PP nd 2344
Look at WCOM here, the 232234
stochastic peaked and reversed,along with WCOM's price theshort signal was when it lost 23...a cover right over 22.
22:12
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Copyright 2000 Lata Ereadeacting Corp.low Stocks (15)80.0%60.0%40.0%20.0%
The GOAL for this activity is for you to learn how to successfully IDENTIFY GOOD OPENSHORT trading opportunities, using current examples.
Directions - Papertrading 10 OPEN SHORT trades:1. Over the next 10 trading days, I want you to look for a total of 10 “open short" plays
that meet our criteria for practice trading. (you may find 2 on one day, 3 on another,none on another etc).
2. Paper-trade haw you would enter and exit these “open short" plays based on the guidelines that
we have presented here.3. Open shorts are typically entered around 9.25-9.45 and covered by 10am or 10. 15arn at the
latest. Remember the first 6Qminutes makes reversals every 10-15 minutes and you want to be
on the right side of these in both your long and short plays4. Your cover stop losses can never ever be higher than the opening price was at. In the WCOM
example above, thats at 24 1/4...Eg you enter the short at 23 3/4 and have a cover stop at 24 or
so...
5. Keep track of your open short profitiloss for the 10 trading days that you are papertracing
these open shorts on.
6. Most importantly, make a brief list of what went right for your profitable open shorts and what you
should have done differently for the ones that you lost on. What changes will you make in yourpersonal tracing style based on what you've learned?
Module Shorting Skills for Active Traders:
Five
Module Five: Activity 2 - "Making Shorts a Regular Part of
your Trading Activity"
e This activity will help you learn to gain confidence and familiarity with the whole idea of
Back toMODULE 5
shorting, and help structure several practice activities that should help you become more skilled at it
¢ The first thing to do, of course, is to heavily practice it, with a simulator, like the excellent
cybertrader.com simulators. If you have an account with them, you just use “derma logon” and stillpractice trading with live data. If you're not a customer, you can practice with practice data. Or, use
whatever simulator you feel comfortable with, just practice.« Let's look at how to get started on the path to shorting stocks.First, you must realize the rim F]\finterval Chat Ee] 8) [iy S| | Beale) 2A Tr
Yalue, the Benefits of shorting
 
stocks.39.00This RIMM chart is a great 38.90example. One of aur TTO traders 38.60told us about the long run, I had "us wait, and short it on the way 38.40fown, at 39.7, to cover for a nice 39.20+1 gain.38.00Ever miss a "run up" in a stocks? 37.80For experienced traders, you can 37.60short a pivot on the way down,like this RIMM trade, New traders, 37.40short weak stocks making 2-day 37.20lows. 37.00Second, you need to get familiar 36.80with the uptick rule, and look for 36.60short opportunities based on the 36.40chart pattern and time & sales.HW 36.20Finally, you need to practice, 36.00practice, practice, til shorting 35.80becomes second nature.Papertrade extensively. Copyright 2001 Data Broadeacting Corp. eadolumeIt's the “other half of the action" ‘120Kand you shouldn't miss out on it, 100Konce you've been successfully 80.0Ktrading lang for awhile. 60.0K7 / 40.0Kme WIth lll =. Mh lc
 
 
 
 
 
 
 
 
 
10:00 14:00 «12:00 13:00 14:00 15:00 4/2001
The GOAL for this activity is for you to gain CONFIDENCE and FAMILIARITY for shortingopportunities, using current examples.
Directions - Papertrading Shorts for 4 weeks during the first 2 hours of the market:
1.
2,
Over the next 20 trading days, | want you to decide on 4 stocks that you will follow and look forshorting opportunities in for the 10am til 11:30am (only) timeframe.
Next, practice shorting only stocks making new 2-day lows. These are the best opportunitiesfor new traders to focus in on. If you're more experienced at reading time & sales, you can trypivot shorts like the RIMM exarnple above.
Paper-trade how you would enter and exit these short trades. Make sure that you see an uptickin your L2 box prior to entering a specific practice short entry, since you must have an uptick toshort into.
Keep track of your practice short trades (how much did you profitistop out on) and thetotal profitiloss for the 20 trading days that you are papertrading these shorts on.
Finally, print out the charts of the winning shorts that were good for the most profit, and make abrief list of "what went right" for these shorts. Exarnples can include: weak market, COMPQmaking 2-day low, you shorted a weak stock in a weak sector that day, time of day was good fora short, stock was making a new 2-day low etc.
To gain confidence, practice until you are consistently making winning trades. Take severalmonths to do this, do not be impatient. Like all trading skills, this one takes time to master - Bestwishes!DTU Module 6 Lessons:
Advanced Chart Patterns & TA
Click on each link for a new daytracling lesson. Be sure to Back tacomplete the trading worksheets and activities for each module: DTU CAMPUS MAP
Click on each line for daytrading lessons from thelist below. An underlined link means the content isnow available. Note: click on your browser's"reload" button to make sure you see the fatestmodules posted as they becomeavaifable..Remember to set your screen resolutionto at least 1024x768 to enjoy DTU.
A = Updated pages wiin last week
 
ES to play audio, click the yellow speaker icon ineach lesson
« 2-day High/Low Breakout Chart Patterns Explained - {with Audio)
« Time of Day Reversals and Pivots you Should Know About - {with Audio}
« Using Fibonacci Retracements for Intraday Range Tracling (with Audio)
« Trading with Three-Point Breaks, Elliot Waves and More
« Using Nasdaq Futures/E-minis, $TRINQ and Sector Charts: More Tips
« Bullish Candlestick Chart Patterns to Go Long With (with Audio}
« Bearish Candlestick Chart Patterns to Short (with Audio)
« Reversal Candlestick Chart Patterns: Exiting Trades based on Pattern
Reversal« 1-Minute Stochastics In Detail: Chart Setups You Should Recognize (with
Audio)« Recognizing Breakouts and Breakdowns: Trading Consolidation Pattern
Breaks (with Audio)« Patterns for Fast Traders: Chart Patterns for the First 30 minutes of the
Market, 9:30-10am (with Audio)« "Hanging on a Cliff Ready to Drop" Short Chart Pattern Tips (with Audio)e Scalp Charting Patterns: Flipping 1/4s and 1/8ths for profit later in the day« Using multiple Advanced TA Indicators Together as a System: Examplesof How a Pro Trades« Time of Day Patterns for Trading: Knowing the "Prime Times" andRetracements/Pivots
<=> Click here for Powerpoint viewer programClick here for MSWord view progam (3.5Megs.
ft
pes | « Trading Your Favorite Long Chart Patterns- New!« Advanced Risk Management: Using Trailing
Stops & Stop Losses« Chart Patterns for Fast vs Slower Trading:
What's the Difference Here?« Using Multiple Advanced TA IndicatorsTogether as a System- Worksheet
¢ Trading Like a Pro - Whatare Your Signals?
« Collecting Chart Patternsthat You Win With
e Advanced TA: Applying it toYour Own Trades
e Action Plan for ImprovingYour Daily Trading Results« Scanning Basics Part 1: Choosing the Types of Stocks to
Daytrade
@ Main Points:
¢ This lesson will help you leam how to select astocks are best for Nasdaq daytrading
« Start by quickly reviewing the first intro modulepage on the subject, eg avoid the most activesand those wiess than 5% intraday volatility
e With all the possible stocks out there to trade,how do you choose the best ones to focus yourtrading efforts on? This is what we'll answer in allof Mudule 7, starting with this lesson.
¢ Key criteria for choosing the right stocks totrade are illustrated with the examples below.
e A few helpful things to remember are to bepatient, be skeptical of charts, be sure to tradeduring the best trading time of day, eg 9:30 tildiam, and be selective in choppy market.
 
@PREVIOUS NEXT
Back taModule 7Index
« Stock selection for daytrading is based largely
on trading ranges and chart patterns. Thevolurne and volatility that are essential tocreating profitable trading opportunities areimportant to learn how to read.
Scanning through a list of stocks, like those onthe left, is done each morning premarket startingat 6:30am EST, we look for premktbuying/selling/gaps and volatility as an earlyindication of the rnarket trend. We also look atthe COMP@ on the two day chart.
The stocks I'm training traders to use, andtrading myself, for the current rarket, June2001, are in the column on the left. Many ofthem, eg the tier 1 sector leaders like INTCMSFT, or ones that some of the rooms tradeheavily, like JNPR/CIEN, | may use only asindicators, ones | keep an eye on, while tradingactivity is focused more on ones like VRSNCHKP ADBE AMAT SEBL BEAS.KEY IDEA: Scan for "CLEAN CHART LINES" on charts with WIDE 2-4 point intradaytrading ranges and volatility, stocks priced $30-$60 or so.
STEP ONE
Learn what stocks are in what sectors, and which ones are the “most actives" (not for trading,more to use as an indicator) vs the “trading stocks” (eg INTC the most active, we trade KLACAMAT LLTC XLNX PMCS etc).
Figure out what sectors and stocks to begin looking at using a 2day 2rinute candlestick chart.You do not care about the 1Oday or longer timeframe. Start scanning based on stocks in major sectors(click this link to see what stocks are in what sector). Also see this link midway down the page forstocks sorted in sectors.
STEP TWO.
Now that you are familiar with what stacks belong in what sectors, begin looking at them on two daycharts each morning, (should take 1-2 minutes per chart for 20-30 charts you review each morningpremiarket).
Your daily moming premarket ritual should include the following:
« What's the average intraday trading range of the stock? Let's focus on those with a 2 to 4point range as a starting place
« What's the price of the stock? Look to trade those priced $30-$50 per share. The under-$20stocks, and to a lesser degree, the $20-$30 ones, have under a point (or 1 1/2 point) totalintraday range, making it difficult to get +1/2 point wins or better consistently.
e What's the chart patterns of the stocks telling us? Look for ones that have relatively cleantrading ranges and can provide decent trading liquidityCompare the “good stocks" and "bad stocks” examples below - what differences do you see?GOOD STOCKS FOR DAYTRADING EXAMPLES:
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Answers: for the good stocks, above, we have good trading ranges and volume. Both are needed for successfultrading. There is strength in these charts, in the directions of their moves, both down on 6/14 and back up offthe bounce an 6/15.
BAD STOCKS FOR DAYTRADING EXAMPLES (same trading days, 6/15/01 - 6/16/01):
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Answers: for the three stocks above, which | would generally not want to trade on a regular basis, each chart has aproblem. COR’ is too cheap, it's a sub-$20 stack that has very little trading poteritial. Also note that you cant short under-$4 stocks. The best a trader could've done is buy the exact bottom at 3.9 and sold for 4.1 ... this is bad.
MSFT doesnt have enough trading range (though a 2d breakdown short is a good technical entry, the trade potential is nothigh). And ELON doesn't have either sufficient volurne or volatility to be worthwhile for trading.
| want you to learn how to differentiate between the various charts, and learn how to ignore/filter out all the bad charts,which are the majority, and instead learn to focus on specific trading opportunities when they exist
which are the majority, and instead learn to focus on specific trading opportunities when they exist.
We will caver many specific scanning strategies and criteria throughout Module 7, since it's important to help you all learnwhat to look for in whether or not to enter a tradee Scanning Basics Part ?: Identifying Signals vs “Noise” -What Should Get Your Attention?
@ Main Points:
© This lesson will help you learn some of the initialcriteria to use in helping tell the difference between“good trade opportunity" and “no clear signal" inthe charts.
e One key to rernember is that you do not want taget wiggled out, so avoid charts that have a lot ofchop and churn in ther. You cannot expect to“thread the eye of the needle" with somestochastic pop scalping style, this is unrealistic.
e You want to use close stops on stocks in clean,large 3/4 point type trends
© In scanning for stocks to trade, give preference tothose with “clean lines" - they are easier to trade.
CHART PATTERN EXAMPLES:
CLEAN TRADE LINE CHARTS
Scanning Strategies and Software
PREVIOUS NEXT ®
Back toModule 7Index
It is worth noting that it will take you sometime to learn how to distinguish between thetwa types of charts.
The examples here and in subsequentlessons can help give you a clear idea of whatyou should be looking for.
It's good to avoid the chum in stocks thatchop and oscillate too closely, as these willproduce rnore stop losses.
It's also important to know how far, onaverage, your stock will run before getting aretracement or consolidation patterns.
Note in the charts below that the trading follows a closer line, eg there's less “chop”and wiggles on the patterns. These are better for trading. You do not want to trade stocks
that oscillate and chop around a lot, as you will get stopped out.
These three below, EBAY BGEN ERTS illustrate “clean” trade lines:
 
 
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CHART PATTERN EXAMPLES:
CHOPPY/NOISY TRADE LINE CHARTSNote in the charts below that the trading is choppy and indeterminate. Themoves in either direction are met by reversals more frequently, and trading ischoppy. Again, these are all fromm the same trading day.
These three below, CIEN DELL QCOM illustrate “choppy/noisy" trade lines,and show you the types of charts to avoid trading:
 
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Not surprisingly, these are also very heavily traded “most active" types of stocks. Agood exarnple of haw something popular with the public crowd can be bad fordaytrading
Your Own Observations:
Okay, so go pull up a handful of charts and see if you can start to differentiate basedonthe “trade potential” in what you are looking at
Take note of those with cleaner, easiet-to-follow trade lines, on good volurne, cornpareto those that just chop and churn.
As a trader, you should develop the ability to differentiate between these various chartpatterns« Scans for Percent Gainers - When Do We Look for New Longs??
@ Main Points:
This lesson is designed to help you learnwhat to look for both premarket and as eachtrading day begins for scanning for potentiallang entries.
One key strategy to use premarket is tobegin by identifying stocks that are “outliers”,eg those that closed the previous day thehighest percent green/red, especially whenthis is over 5% in magnitude.
In the current trading day, we can play both
PREVIOUS NEXT ®
Back taModule 7Index
« Strong clean line charts that are reversing orcontinuing on high volume are excellent talearn how to scan for.
« This strategy is particularly well-suited tarhixed, choppy days. You want to be able toidentify those few charts that have the bestpotential for follow through using thesetechniques.
« Using a 2day high breakout pattern incombination with correct prermarket and early
tarket scanning can produce excellentresults. Let's look at a few examples:
continuations/reversals of these, as well aslearn how to do real-time scans for highpotential trade setups.
e In scanning for percent gainers, we need tounderstand both the average intraday tradingrange of the stack, eg when it's extended orabout to continue
THE METHODOLOGY FOR SCANNING FOR PERCENT GAIN CONTINUATION PATTERNS:1) PREMARKET WORK: RELATIVE SECTOR STRENGTH PREVIOUS DAY SCANit begins, as always, with your premarket work that you start each trading day around 8:30am EST.
- Set up one dedicated quote box that just tracks sector percent changes (calculated frorn the open, notfrorn the previous day's clase)
SCANNING ELEMENT ONE: Relative Sector Strength from Previous Trading Day: You should look for whichsectors closed off the most greer/red from the open in the previous trading day... eg a typical analysis mightyield -
Strong prev day (NBI SOX) Weak prev day (GIN GSO) If you see that in the previous session, say NBI closed+1.8%, SOK +1.2%, GIN .0.6% and GSO -1.1%..
Ok, so now you have a ‘bias’ to know which sectors had the most money flow in/out in the previous tradingsession. This is a helpful data point for the current trading day.
1) DING DiNG! OPENING BELL, What To Look For:
Okay, now as the market opens, you shouid be keenly focused on the sector percent change from theopen as the market goes from 9:30 am til 9:38 am. You're looking to see a) whether they open mostiygreen/mostly red, and what trend they have, as a group and bh) which 2 sectors are thestronges’weakest? To get this you need to click on the Pct column frequently, to sort the column by whichsector percentages are moving, eg once every couple of minutes.
You also have 1-minute line charts on your monitors grouped by sector, along with an index chart (seehttp: /Awww. daytradinguniversity.com/!6mon.gif left two screens for examples, using SOX/GSO) Also note thesector percent chart in the 2nd monitor as well.Let's walk through an example step by step, a