One of our members asked how to overcome a fear of shorting:
Shorting is difficult for many people as it is counter intuitive trading. As humans, we like to buy and sell things – simple enough.
Shorter is selling something you don’t own, hoping that you can buy it back cheaper. This does not happen with other things in real life! Only in trading can you borrow something you don’t own, sell it, and make money buying it back cheaper. How cool is that!? So if you miss the big run in a stock, watching it climb higher every day in regret, your time will come to make money when you short it and then the stock finally pulls back.
In our chat room, we are interested in short-term short trades. We use two types of strategies. One is the parabolic short, which occurs when a stock makes multi-day highs and we stalk the stock until we see some weakness, then short it for quick gains as it comes back to some type of nearby support area. The other is our usual earnings/news break down shorts; it is the same way we play earnings breakouts intraday.
Let’s demonstrate how this intraday short trade works. In our trading bootcamp, there is a whole chapter by me on how to pinpoint exact entries and exits for intraday momentum trades.
Shorting is not for everyone, though. First, you need to master how to trade longs. Once you learn how to trade long profitably, it is time venture into the “dark” (short) side. If you have any doubts when shorting, use the ”Flip Chart” method. This is where you take the chart and flip it vertically.
The chart above is simply an inverted version of the $CONN intraday chart from 09/05/2013. As you can see, the stock gapped on earning news and pulled back hard, filling the gap half way. Later in the day, the stock finally establishes a trend as it slowly started riding up the ascending 20 EMA (circled). The VWAP was acting as resistance (orange line). Around 2 PM, the stock finally breaks out over VWAP and price resistance (white line). If you are trading long, this just gave a fresh long entry; if you went long on that break, it was good for almost $2 in quick gains!
Now let’s flip the chart.
As you can see, $CONN actually gapped down on earning news. It went for a morning bounce and later in the day started fading again as the stock started a down trend, riding down the descending 20 EMA as circled. VWAP was acting as support, (orange line). Around 2 PM, stock finally broke down below VWAP and price support (white line). We shorted the stock at $61.67 and covered our shares at $59.53. It was good for almost $2 in quick gains!
So as you can see, it’s exactly the opposite as going long. Hopefully this article will change your mindset and way of thinking.
If you want to learn strategies like this, try our Bulls trading Bootcamp Its a 3 month webinar class that takes you from A to Z of our trading strategy. https://bullsonwallstreet.com/bootcamp-training/
Please email me for more info – thenyctrader@gmail.com
