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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Previous Trading Day
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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 = WODULE 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, lock 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 werth 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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Shorting a 10am HIGH on a cup breakdown.
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50.0KllShorting Momentum Runners {Not Advised for most traders)
CAUTION: Ezperiencedtraders 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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Buy here (cup breakout long)
  
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Module orting Skills for Active Traders: #PREVIOUS NEXTBack t« TA for Shorting #1: Basic Short Chart Patterns: Identifying Py it 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.
 
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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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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.
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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 ‘Copyrigh: 2000 Dats Eroudeacting Corp. 88day short cover rally most [veins 00Kof the time) °40.0Ktha | 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 1/2, Covenng ay 10:20 0rse at 68 | 10/5/00 10/6/00
 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 10-45arn
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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10:00 11:00 12:00 13:00 14:00 15:00 10/6/00Momentum Short Entries: Tanking on Open
Much as with momentum long plays, we tend to avoid these, but, you should be aware of them as one style of shortingthat some traders like (Why do | tend to avoid these? | want a reason other than “the crowd is selling it here" to enter ashott, eg losing a 2-day support level lets me know where to put a cover stop loss more easily
Momentum shorts are more difficult than longs, since you need an uptick to short into. The time to do this is on a“pause", when the initial rush of sellers is taking @ breather and the stock is waiting before selling off some more. In theATHM example below, this pause was at 11 1/3 Do you see it below? We missed the 12 to 11 tank, but getting onboardwith the 17 1/8 to 10 3/8 was a bit easier.
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ATHM Short: Selling from the
open, no buyers in sight. aAfter an initial pause at 9:40, 1178ATHM kept selling down from 11 11314‘3/4 to 11 1/8, paused for a bit 1158longer, then kept selling of to 1142around 10 support. As with 41398longs, you look to find reversals 4448near decade numbers, eg 10 20 1111830 ete. "110 718
 
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i 10 3/41B A tal \ 38Quick self-test’ whare 1s the vlc oT 10172micro-resistance level from the fy 10 38timeframe of 11am til 3 pm at? iw ha
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200K
150KAnswer, microresistance at 10 100K3/4 .. notice it couldnt break
gver that point though it tested i oll bi dha dl vacthaLecthdd Al Lill °°
sitimesielwing) el day: 10:00 14:00 = 12:00 43:00 © 14:00 45:00 1076/00
 
VERT Short Here's a more pert] [rewalchar =] adramatic example. VERT VERT Interval Cart PV aloes! 5 Ji
opened up right under 30 and
 
sold of all the way down to 22 or! ion 20 112282? 112There were three gaod short BF
entry signals to watch for here
41) t couldn't make @ high abovethe opening price near 9°30-9-48
2) It was right under 30 decade
resistance, a great place to 23112
a ay wiemh ty 22
3) A second shor opportunity woh 2112
cam when it bounced et 10am
24
and kept going down fram there -espyigh 000 st Eresdeaing Co,
PataWeld look to caver somewhere ‘tooKbefore 20 support leval, in thiscase we gat strong support all 50.0day long at around 21 ii Li i Wl di | i1/2 ..scalps off this support level . ha, mt To i lilwould be ok too, later in the day. 10:00 11:00 12:00 13:00 14:00 15:00 10/600
Homework Assignment. Okay, now you know what to look for- these are the signals professionals use. You wont find them inanyone else's book or website. Homework: | recommend that you use a chart software package, or website like bigcharts.comwith 5-day charts, for some of the stocks thal you like to trade, and look for similar pattems
Look for these pro shorting pattems in the stocks that you trade. Notice that NONE of these examples tell you to short stocks that,are running up - a common new trader MISTAKE. You want to Sell Weak Stocks and Buy Strong Stocks. Do MOT try to short ashooting star, or buy a falling knife
These pattems are to help you sell weak stocks at the proper time, for highest short profts Good trading!
 and Volume Tracks
® Main Points:
* In psychology, there is a saying that “pastbehavior is the best predictor of tuturebehavior. In the stock rnarket, we say “bearswin, bulls win, pigs become bacon".
When it comes to repeatable pattems, thereare very few, in stock price movements,beyone an initial retest andfallurefbreakthrough of specificsupport/resistance areas.
‘One thing that does tend to repeat and hold isvolume patterns, as in the examples in thislesson. A good example is in the QLGC chartimmediately below, the volurne is heaviest etthe open/close, and thins down from 12:2daily
USING VOLUME TRACKS:
Shorting Skills for Active Traders:
« TA for Shorting #2: More Chart Patterns for Shorting: Volatility
PREVIOUS NEXT
Back toMODULE 5
How do you use this to profit? Buy on similar pattems dayto day, eg retest and bounces, or short newbreakdowns/buy new breakthroughs, particularly when thisvolume propels the stock price through a 2-day high or lowBe a detectlve - look for clues In the stock charts, using allyour technical knowledge from previous DTU lessons andother books out there.
Volatility is important as well - see if stock is exceedingor near it's 2-day tracing range, eg if you know KLAC has a2-3 point trading range and it's already meved 2 1/2 peintsIn one direction on this day, you wouldnt enter in the sarnedirection, unless there's a very (rare) compelling technicalbreakout.
Put the probabilities in your favor - make sure to know yourstocks, the behavior of the traders In It, as meesured byvolume and volatility “tracks in the sand" that the stockleaves for you in the previous trading session.
Repeatabie Early/Late Day High Volume Patterns
Let's lock at several days of QLGC in the chart below here You can see the high valume at the start of each tradingday, right? On the first day below, it was all buy yolure- a great time tu gu lung. Wher this started to reverse, wesaw short entries Note that we didnt “guess a top" on the first day, and we didnt short the last third of the rangedown (from 39-41) on the open of the second day, we instead wail for il to lose the previous day's low, end shorted38 5/8 The second short entry, on the third day, is again when it loses the previous day's low, short 36 &/8
What you want to leam here is how to study the charts like this and see what I'm seeing: that "most of the action"occurs on high yolurne in the first hour or so of the trading day for this stock. This, we know that a short on the thirdday is likely to continue on downwards, given the volume pattem and 2-day low breakdown. Make sense?
Jose llfirteret Chart =] 2) i 2) e523) fT
  
    
shart entries
28
 
     
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sell volume
 
clarebuy volume
sell volume
 
      
8 8 8 & 88 8 Bs
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00 1100 12:00 13:00 14:00 15:00 10:00 11:00 00 13:00 14:00 15:00 10:00 14; 12:00 13:00 14:00, 15:00316. 3
 
 
 
      
 
 
 
current 7212trading day trading day72Here's another example ta theright (AMGN), that shows us a bi ttegood short entry under the 5, i 71decade 70 support, on the openof the current trading day, under ‘ ( 70 11269 6/8 A d2-day low 70decade short entryWhy? Heavy sell volume on the support lost 912open drags the price down, andour profits go up, as we short the 6969 5/8 on the open, under the 4two-day low, on heavy volume. iy? 68 12ipre‘We look to cover (and possiblyreverse to a long) once sell erevolume starts to lighten up, and acup pattem reversal on heaviervolume starts to form. That's our“cover the short” signal, and accelerated 200Kwe're out at 67 3/4 or so fara selling volumenice 17/8 short profit. oii tha pati 150K100Kyl hnil i | ll | ih, MT13:00 ©1400 15:00 H 12:B01
 
 
EXTR Short: Here's an excerpt
of 3 trading days in EXTR JESTR SJ firieratChan Fey) | fli 92 | asa] PAT
 
 
 
     
 
