4:15 11:30 11:45, 212/01
Shorting Lunch Weakness with the mms:
Oftentimes it is good te look toenter new shart pasitions fromaround 17:30 or noon until pro orlater, as stocks will often driftdownwards over the lunch hour,until the mom's return from lunchand volume/volatility returns to themarket, These are longerdaytrades, usually taking 15minutes to an hour or more tocomplete round trip.
Here's a perfect short example:AMAT is stairstepping down in aclassic downtrend: lower lows andlower highs throughout themorning
[AMAT e] firtewatchat =] PIV QS 4| Sli EGR
 
  
Perfect Technical Downtrend: S1441 Lower lows and lower highs 51. all morning long 503450 1/250 1/45049314491/224914t =Tel 4983/4taste
it Short into Lunchtime Selling. $1112
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Copyright 2000 Nats Brasdencting Comp.volume
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9:16 9:30 9:45 10:00 10:15 10:30 10:45 11:
 
 
 
 
 
Late Session End of Day Shorts:
 
00 11:45 11:30 14:45
2/2001Finally, we can look at late [rtewal Chat] 1 : Fend-ob-day seling There's, NTS rterval Chast Piva; ee
 
 
 
two time zones to be aware 38 14of, one is from 2-3:30 or so, Lh 38the other is during the close, r 3734frorn 3:30 til 4pm. t "y hag, 37 172Hh, hb bP 37 1The best is to look for bear hag al 1 lh, at A Acup breakdowns during 2- lunchtime chop/consohdation {| | jag 36 343.30, as selling continues. Lu \, 36 1123614Often you'll see some 36dof d :volatility at 3pm when the phaieaee tia ai ‘if Wy 3530bond market closes; also, 35 12you may see end of day Wectoeeseseeyeeseytanking Or short covering,s0, careful holding any short 500K
 
 
 
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9:30 10:00 10:30 11:00 11:30 12:00 12:30 13:00 13:30 14:00 14:30 15:00 15:30 2/2101
 
Module Shorting Skills for Active Traders: S4PREVIOUS NEXT Ds
¢ Premarket indications for shorting opportunities: chart patterns, eee 5
hewseaming
@ Main Points:
© We've already discussed how to look for large
‘We do not ever enter new positions in the
 
 
premarket gaps up, over 8-15%, that are premarket. This is because our volume is very lowgetting selling on the open (bear cups) as Speaking of volume, you only want to screen forbeing the best short opportunity. Now let's stocks that have over 20-30K minurnum volurne bylook at 2 few more around 910 am. Ifa stock has gapped up a lot or
© Premarket activity is @ good leading indicator down on just 12-15K volume, for instance, you don'tabout the overall strengthWweakness of a want to touch it- yet.stock when the gap activity is less than 5%. * We are looking for continuations & reversals on the
Ive pulled together a handful of example open from premarket chart patterns. The stock willcharts far this lesson to help you see how to do one of three things: stay flat, go up, or go down,use premarket charting to correctly identify right? We wart to see if there's significantshort candidates movernent up or down through a good technical
© You need to have a charting software date entry] point ,feed senice (like esignal. com -) that has © I tend to like to short stocks that are raking new 2-prematket chart ability in order to daytrade day lows at around 58 below the whole number thateffectively. There's no reason to be "blind" was the previous low/support level. You will see thiseach moming in the premarket, when you can in the charts belowhave charts to help you see couble tops, cup Charts let you see the impact of news, earingsbreakouts and reversals. releases, and anything else, so we use chart
patterns to trade with We do not guess at whatnewsfeamings will mean for the price of the stock -ever. Ifwe did that, we'd be investors. (perish thethought)Small Premarket Gap Down Under Previous Days Low
Here's a yood example of a premarket JBACD A\[irterval Chat el) 8) [iy || alse Sapir 2)
 
 
double top failure in BRCD that
continues on down. Provious Trading Day
Note that we da not short on the open,we instead wait for the premarkatpattern to make a new low, and enter ‘ Pitthe short at 35 5/8. OyeChart Pattern: Small GapDown Under Previous Day'sLow --> BEARISH SHORT‘SIGNAL ON OPEN
This is a classic “short the 2-dey lowbreakdown" after a weak opening in thestock
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Below in NTAP - what do you see? | always draw the technical low/high*2-day lines to help you seewhat I'm looking at as well In NTAP we see support at 28 in the previous trading day, a weak openwith a small gap down, and a breakdown later in the morning on heavy selling volume We short inthe area of 26 6/8 {uncer the 27 whole number support) and cover out in the high 26s as our coverstop gets taken out on the way up after 11am.
[rap Eelifisecra Chon] 8) 2 al) SAT |)l
 
          
Previous Trading Day
Chart Pattern: Small Gap DownUnder Previous Day's LOW —>
Copyright 200} Data Broadcasting Corp.Golam
 
 
 
 
 
 
 
 
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Fm mH
PREMARKET
CHART Regular Trading Session
failed bull cup,
reversali‘p short 36 5/8
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10:00 10:30 11:00 14:30 12
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BEARISH SHORT SIGNAL ON OPEN,
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PREMARKETCHART
    
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10:00 10:30 11:00 11:30 12
 
 
 
3/8/01
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300K200K100K
30 12
Regular Trading Session
2928 1122827 1122726 1122626 122524 112150K
100K
50.0KLarger Premarket Gaps Down Under Previous Day's Low
Remember we typically start lookingfor bounces in stocks that gap downmore than 8-15%, right?
‘One exception to this is if the stockgaps down to retest the mmeciateday priors low, in this case to theright, TXCC, that was under 20, at the19.34.
One good thing about these shorts isthat you can easily see where yourcover stop loss would be, eg the 193/4 line.
So, a short on the open, around 195/8, would let you cover as low as 185/8 or so before a bounce takes outour trailing cover stop
For these lypes of pattems, makesure you have confirming indicatorsthat shorting is the right mova, eqyour sector charts all gap down a bit‘on the open, the COMPQ is makingor near a 2-day low, oris selling offafter a large gap up, etc
Finally, we have SUNW, @ stock likeINTC MSFT | rarely trade sincevolatility is low.
‘We do have a good pattern to workwith today, a “failed bull cup" in thepremarket, you can see the pricetested 21 3/4 a couple of times beforelosing it, we short on a breakdown,new low Under the Premarket Low{that's important, make note of it}that's also under the previous day'slow.
In this case, we could nibble +1/2 ona short under the 21 1/2 short on theOpen, cover around 21.
 
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py8SModule Shorting Skills for Active Traders: @PREVIQUS NEXTFive
Back 10.Types of short plays: lunch weakness shorts, moming top shorts, momentum = \ODULE 5shorts.@ Main nts:
 
Patiem recognition is one key lo successful daytrading.By showing you many examples of annotated chert patterns
We are covering a number of different typesof short plays in the lessons in this module
so that you can become completely farnilar for these shart plays, | arn hopeful that you can leam whichwith where the entries are. shotts are likely to work out, and which types to avoid,
* There ate many short opportunities in each based on your trading experiencetrading day, and you are encouraged to For example, new traders [less then 1 year fulltimelearn how to play these as well as our long experience] should never go against the trend and try to.plays. shott tops, of momentum runners.
© Most treders never shott - this is a « itis always important to remember to use a cover stop lossmistake. on shorts, just as in long trades... eg if youre wrong, get out
with no greater than a -2/8 loss, ever.In general, | ike to short under a whole number, say at the#4 or 6/8, and use the whole number above my shott entryas the max stop loss exit to cover.
New traders try to short morenturntuners - this is also a mistake.
Learn to short 2-day breakdown lows usingbear cup pattems ete as we mention inother lessons as well.
Major Types of Short Paytrading Plays
Here's a brief surnrmary, we will illustrate all of these with recent chart patterns, below:
(reminder) 2-DAY Low BREAKDOWN SHORTS: These are the best shorts, the inverse of our long 2-day breakout highplays. Simply look for a stock to be making a new low below the previous days low, and short under the whole numberbelow this area,
LUNCH WEAKNESS SHORTS: As we mentioned, look for weakness after 11:30-noon, til around 1 or 2... stocks willoften sell down during this time frame, making for gocd shorts. Beware of 12:30 and 2pm long reversals, on rareoccasions.
MORNING TOP SHORTS: Often you will see stocks put in a top at around 10am. This is a good time to look forreversals and enter shorts for experienced traders, as the stack makes a bear cup.
MOMENTUM SHORTS: For experienced traders only, these are worth leaming as well - you need to be very expenencedin reading time sales to even consider these. These are following multipoint runs up, and are shorts initiated after sellingbelow a whole number has occured, eg you see a “bear cup" pattem and have a t&s confirmation. The opposite of“catching a falling knife", these are generally not recommended at least, rot unless youte skilled at spotting reversals
2Hday Low Breakdown Short
As a brief reminder, these are the best shorts to lock for, in the order of “likelihood of them working outcorrectly" for you. | am menticning the other types below to broaden your vocabulary. Remember, losing a 2-day‘support level usually works out for a short. In this case, we'd take a stop even on the first atternpt at 10, andmade a good 1-point run on the lunch 2-day breakdown as indicated helow:
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2-Day New Low Breakdown Short: LUNCH WEAKNESS
 
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100KLunch Weakness Short
Here's another examples of a lunchweakness short on an intraday chart,PYVER losing support at 35.
We enter the shorl al, say the 34 5/4, andtrail a cover stop down til we're out at the33 1/4 or so, fora +1 3/8 on it
Lunchtime seldom gets new buyers, themarket is often choppy and/or weak
If it's just chopping around in a tightconsolidation, or trading range, then donot trade it.
If, however, the stock loses a key supportlevel during lunch (again, preferably a 2-day support), then you can look to enter ashort, again with a 3/8 max stop loss in it,and look to cover with profits by 1-2pm.
Shorting the Morning 10am Top
CAUTION. Experienced tradersonly
‘This |s for experienced traders only.
You can lock to catch a reversal ataround 10am, where many stocksput in a day's high (or at least, themorning high), on weak or choppydays.
Of course, you would not short at(Oar if the whole market |srunning, making new 2-day highs,the TRING is under 1 etc etc. . usecommon sense
The 10am time frame is importantto the moming session, and iswhen the frst strong trenddevelops, after the market'schopped around in it's 9.30-10 amd10-minute revarsals
Look to exit open longs near 1amat the first sign of weakness, using@ Close trailing stop (eg 1/8 to 1/4)if in long, and possible reverse toshort on any weakness and bearcup patter.
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LUNCH WEAKNESS SHORTunder bear cup loss ofwhole number
 
Short here-under lossof whole number supportinto downtrend going intoLUNCH WEAKNESS:
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13:00
Shorting a 10am HIGH on a cup breakdown.
10:00
     
consolidation, no more buyers
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50.0KllShorting Momentum Runners {Not Advised for most traders)
CAUTION: Experiencedtraders only
Finally, we will look at thetype of trade I dontrecommend for mosttraders .. which is looking toshort momerturn runners...in fact Ive spoken againstthis type of trade, since it ishow most new traders getbumed.
‘We can see a long buy onabull cup breakout early inthe stock... in this chart we'llIcok at the short entry off thetop
How would you ever know itwouldnt run to say 45 or 47?
That's the problem with thistype oftrade, same as theirverse, in buying longstocks that are tanking. Aclue is a) multipoint run upb) high volume in theconsolidation zone at 10:30,telling us a lot of stock ischanging hands.. c) bearcup forming from 10:15-14:15 and d) finally, mostimportant, a bear cupbreakdown under the 41 1/2at 11.30 into lunchweakness... several factorstelling us it may finally betime to consider shortingthis one. Careful on these,and dont do them unlessyout fast and good wit&s
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Trading Cup Pattern breakouts fbreakdowns:
         
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== Short here (cup breakdown i,
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Buy here (cup breakout long)
  
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Copyright 2000 Data Brosdeacting Corp.
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9:30 10300 10:30 1100 11:30 12:00 12:30 1300 13:30 14:00 14:30 15900 15:30218104
 
 
 
 
Module orting Skills for Active Traders: #PREVIOUS NEXTBack te« TA for Shorting #1: Basic Short Chart Patterns: Identifying wate 5
@ Main Points:
© Aswith your long trades, being able torecogrize successful shorting chatt pattemsetups can help you profit if you leam
them.
We will share patterns you will not seeelsewhere, using high-percentage, easy to
enter trading patterns.
« Remernber to trade in the direction of themarket, eg resist the temptation ta shartwhen the market is in a daily uptrend, shortwhen things are “feeling down, like there'sno buyers around”, early enough though toavoid shorting at a bottom. TA and chart
Intraday Sell Patterns
There are a number of correct short chart pattemsillustrated and explained below Please take a look at thernand compare them to your core basket of trading stocks.Remember, we strangly suggest that you "get to know"from 5-30 stocks and thelr intraday pattems fairly well to bea successful day ot swing traders.
Do not jump into trades on stocks youve never heard of,unless you're experienced and successful with your corebasket of trading stocks first. also avoid trading stocksunder 800K average daily trading volume.
Patter recognition, eg "hey it's losing a 2-day support levelhere” is the key to effectre shorting, along with keepingeffective cover stop losses and using trailing stops.
patterns are the key to doing this
successfully.
How to Short Using 2-Day Support & Resistance Levels
Let's start with a big picture view. Once youve established that the market, the futures and your sector seem tohave more sellers than buyers, eg the prices are in a technical downtrend, we want to focus on 2-day chart pattems.
 
lvl stottullla haalarall
36112
450K
400KThe very first pattern I want you to Iza is how to look at 2-day support and resistance levels. Remember, we buy 2-day breakouts, right? Yell, the reverse is certainly true when it comes to selling, and shorting stock. You shouldenter a short when a stock is making a new 2-day low (except for shorting the bottom of a stock that's tankedalready premarket, of course - that's an open gap down, for which wed expect a bit of buying). Again, these areintraday plays, eg you're entering the short in the early part of the second day you use 2-day charts far yourintraday trading.
ALTR Short Lost 2-daysupport level at 9:45
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a1To the right we see an ALTR 2- 50day chart 10/5-10/6/2000. 49First of all, what's the support oelevel on 10/5/00 trading day? It awas roughly 47 46
45So you say to yourself, ok I'll : 7look for a short in ALTR on 10/6 Losing 2-Day Support Law “ifit loses 47, Sure enough, the Here, new 2-day Low 43stock opened flat and started ‘Copyright 2000 Dats Buoadeacting Corp. 42selling. The first short here ioumecould be near the open. (Note: 400K
typically | would enter shorts onthe open (more for open gap upshorts) or around 10am).
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10:00 12:00 14:0010/6/00
 
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Here, we see it got a bit ofbuying from 10-10:15, butcouldn't get over 47 support{now resistance). This is aconfirmation, and we have asuccessful short. Our coverstop loss? At right over 47, ofcourse, say 47 1/4 or A7 308.
Where do we cover ALTR? | typically like to |ook to cover around 10:30, since |expect bounces, but in ALTR’s case no buyers emerged An initial short profit of 4-45 1/4 or + 1 3/4 could be had for a morning short, covering at 10:30, or, if you'repatient you could have waited until 3:30 end of day short covers and covered around43, for a +4 point gain an the short (Note: we even called this short on the momingcof 10/6 in our live tradingtheapen.com room beta test)
Traders’ Plays - What to look for in 2-day support and resistance level short trades:
© Identify the 2-day low/support level for the stock
@ Look to enter a shott from 9:45-10am when the stock is making a new 2-day low.
@ Look to make your initial cover at around 10:20 or so, be cautious about staying short at this time.@ Use trailing stops to lock in profits, and look to cover shorts quickly, so you do not get stuck in a
“short squeeze”... which means, make sure youte already set up with a fast order routing method,eg ISLD ecn or SOES limit buy order.
EBAY =] inervarcher i] P) [ve [ea| | os fir)
Self-Test: Using two-daysupport for an intraday FBAYshort
Identify the 2-daylow/suppert level forEBAY
‘What's your "short signal‘on 10/600?
Where should your coverstop loss be located?Where would you look toexit with profit in this trade{hint always always covershorts before 3:30, since
   
Losing 2-Day SupportHere, new 2-day Low
you will have an end of CCopyrigh: 2000 Dots Eroadcvaing Comp. 88day short cover rally most — [Yeune 60.0Kof the time) °40.0K{i | 20.0kisis lis bi ulAnswer EBAV made 2 cew 2-day low 10:00 12:00 14:00 10:00 12:00 14:00wien it started teaking on 10% and lost62 #2. Covenng ay 10:30 0rse at 88 [10/5/00 1016/00
 4/2 would give you 9 +4 point profit onthie chor. Covering towants the end ofthe day at 56070 would give a +6oomt graft, (1496 in one trade),
Cup and Handle Breakdowns: High Percentage Chart Pattern
Here we see the oppasite our cup and handle breakout on the open, a cup and handle braakdawn Actually, this is moreof just a cup.. imaging a coffee cup turned upside down, for the price action that you see in the initial part of the tradingday. When it loses it's opening price, | lock to fire off a a short trade. Let's take a look at an example here with CMCSK:
CMCSK Short Lost openingprice level of 44 1/4 at 10:45am
2-day support level broken downat 9:45
Our sell/short signal is where weindicate it in the chart to theright. In this case, it would betough to get a short off if therewerent many upticks to shortinto. The key is to keep hittingthe short button til the tickreverses and you can get yourshott off, You may have to keeptrying to short, punching theshort button for 30 seconds orso, until an uptick is made thatyou can short into.
In this case, since the shartsignal occurred after 10:30, wecan stay in the trade for a bitlonger, til right before lunch.
INTC Short: Lost opening pricelevel of 41 at 10-45am_
2-day support level broken whenit lost 44
You'd look to cover the short rightover decade support, in this caseright over 40.
Again, notice how the stock gotsome buyers early in the session(you could have traded the cupand hancle breakout long on theopen, a fast trade til 9:45), thensold off for the rest of the day.
Notice too that the stock is in atechnical downtrend, eg lowerlows and lower highs. Trade (andin this case, short), with thetrend.
  
            
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Cover Right overDecade Support
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