• TA for Shorting #1: Basic Short Chart Patterns: Identifying Intraday Sell Patterns

• As with your long trades, being able to recognize successful shorting chart pattern setups can help you profit if you learn them.
• We will share patterns you will not see elsewhere, using high-percentage, easy to enter trading patterns.
• Remember to trade in the direction of the market, eg resist the temptation to short when the market is in a daily uptrend; short when things are "feeling down, like there's no buyers around", early enough though to avoid shorting at a bottom. TA and chart patterns are the key to doing this successfully.

• There are a number of correct short chart patterns illustrated and explained below. Please take a look at them and compare them to your core basket of trading stocks.
• Remember, we strongly suggest that you "get to know" from 5-30 stocks and their intraday patterns fairly well to be a successful day or swing traders.
• Do not jump into trades on stocks you've never heard of, unless you're experienced and successful with your core basket of trading stocks first... also avoid trading stocks under 800K average daily trading volume.
• Pattern recognition, eg "hey it's losing a 2-day support level here" is the key to effective shorting, along with keeping effective cover stop losses and using trailing stops.

Let's start with a big picture view. Once you've established that the market, the futures and your sector seem to have more sellers than buyers, eg the prices are in a technical downtrend, we want to focus on 2-day chart patterns.

The very first pattern I want you to learn is how to look at 2-day support and resistance levels. Remember, we buy 2-day breakouts, right? Well, the reverse is certainly true when it comes to selling, and shorting stock. You should enter a short when a stock is making a new 2-day low (except for shorting the bottom of a stock that's tanked already premarket, of course - that's an open gap down, for which we'd expect a bit of buying). Again, these are intraday plays, eg you're entering the short in the early part of the second day... you use 2-day charts for your intraday trading.

ALTR Short: Lost 2-day support level at 9:45

To the right we see an ALTR 2-day chart 10/5-10/6/2000.

First of all, what's the support level on 10/5/00 trading day? It was roughly 47.

So you say to yourself, ok I'll look for a short in ALTR on 10/6 if it loses 47. Sure enough, the stock opened flat and started selling. The first short here could be near the open. (Note: typically I would enter shorts on the open (more for open gap up shorts) or around 10am).

Here, we see it got a bit of buying from 10-10:15, but couldn't get over 47 support (now resistance). This is a confirmation, and we have a successful short. Our cover stop loss? At right over 47, of course, say 47 1/4 or 47 3/8.

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 short from 9:45-10am when the stock is making a new 2-day low.
• Look to make your initial cover at around 10:30 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 you're already set up with a fast order routing method, eg ISLD ecn or SOES limit buy order.

Self-Test: Using two-day support for an intraday EBAY short:

• Identify the 2-day low/support level for EBAY
• What's your "short signal on 10/6/00?
• Where should your cover stop loss be located?
• Where would you look to exit with profit in this trade (hint: always always cover shorts before 3:30, since you will have an end of day short cover rally most of the time).

Answer: EBAY made a new 2-day low when it started tanking on 10/6 and lost 62 1/2. Covering by 10:30 or so at 58 1/2 would give you a +4 point profit on this short. Covering towards the end of the day at 56 or so would give a + 6 point profit. (11% in one trade).

Here we see the opposite our cup and handle breakout on the open, a cup and handle breakdown. Actually, this is more of just a cup... imaging a coffee cup turned upside down, for the price action that you see in the initial part of the trading day. When it loses it's opening price, I look to fire off a a short trade. Let's take a look at an example here with CMCSK:

CMCSK Short: Lost opening price level of 44 1/4 at 10:45am.

2-day support level broken down at 9:45

Our sell/short signal is where we indicate it in the chart to the right. In this case, it would be tough to get a short off if there weren't many upticks to short into. The key is to keep hitting the short button til the tick reverses and you can get your short off. You may have to keep trying to short, punching the short button for 30 seconds or so, until an uptick is made that you can short into.

In this case, since the short signal occurred after 10:30, we can stay in the trade for a bit longer, til right before lunch.

INTC Short: Lost opening price level of 41 at 10:45am.

2-day support level broken when it lost 41.

You'd look to cover the short right over decade support, in this case right over 40.

Again, notice how the stock got some buyers early in the session (you could have traded the cup and handle breakout long on the open, a fast trade til 9:45), then sold off for the rest of the day.

Notice too that the stock is in a technical downtrend, eg lower lows and lower highs. Trade (and in this case, short), with the trend.

Much as with momentum long plays, we tend to avoid these, but, you should be aware of them as one style of shorting that some traders like. (Why do I tend to avoid these? I want a reason other than "the crowd is selling it here" to enter a short, 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 a breather and the stock is waiting before selling off some more. In the ATHM example below, this pause was at 11 1/8. Do you see it below? We missed the 12 to 11 tank, but getting onboard with the 11 1/8 to 10 3/8 was a bit easier.

ATHM Short: Selling from the open, no buyers in sight.

After an initial pause at 9:40, ATHM kept selling down from 11 3/4 to 11 1/8, paused for a bit longer, then kept selling off to around 10 support. As with longs, you look to find reversals near decade numbers, eg 10 20 30 etc.

Quick self-test: where is the micro-resistance level from the timeframe of 11am til 3 pm at?

Answer: microresistance at 10 3/4... notice it couldn't break over that point though it tested it 3 times during the day.

VERT Short: Here's a more dramatic example. VERT opened up right under 30 and sold off all the way down to 22 or so.

There were three good short entry signals to watch for here:

1) It couldn't make a high above the opening price near 9:30-9:45

2) It was right under 30 decade resistance, a great place to short

3) A second short opportunity cam when it bounced at 10am and kept going down from there.

We'd look to cover somewhere before 20 support level, in this case we got strong support all day long at around 21 1/2...scalps off this support level would be ok too, later in the day.

Homework Assignment: Okay, now you know what to look for - these are the signals professionals use. You won't find them in anyone else's book or website. Homework: I recommend that you use a chart software package, or website like bigcharts.com with 5-day charts, for some of the stocks that you like to trade, and look for similar patterns.

Look for these pro shorting patterns 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 NOT try to short a shooting star, or buy a falling knife.

These patterns are to help you sell weak stocks at the proper time, for highest short profits. Good trading!