Multi Day Short Selling Setup

This short selling setup example formed over several days recently. Once prices broke down out of the pattern, a great short entry signal was given.

When taking a look at the chart below, notice the price movement that occurred for each consecutive day, not just what happened at the end.

Normally, when looking for breakouts to the upside, one way to be on the lookout is to watch, or search for stocks that are making higher highs and higher lows. This shows a sign of strength and an uptrend.

Another way is to look for stocks that are making higher lows and a fairly equal high, or a common resistance level. Once the higher lows get so small that no, or minimal sellers are left, buyers may be able to cause a breakout to the upside through resistance. This would form an Ascending Triangle.

When looking for a breakdown, or breakout to the downside, looking for stocks that have been making lower lows and lower highs is one way to search. Another would be stocks that are making lower highs and fairly equal lows, or a common support level. This would form a Descending Triangle.

Once the buyers are exhausted, a breakdown can occur at the point of the common support level. Take a look at the chart below:

Short Selling Setup

You can see that on the 11th, 14th, 15th and 16th, the same $11.20 price level held and provided support. At the same time, each day brought relatively lower highs. This can be either a sign a weakness, or a build up of potential buyers which may act like a spring to the upside.

In this example, you can see that on December 17th, prices declined through the previous lower support level. This was the short selling setup entry signal.

If you had been watching the pattern unfold the prior days, you could have had the same lines that I have on the chart, or even mentally, and wait for a move outside of the lines for an entry.

Had prices moved upward through the lines, a long entry signal could have been used instead. Since prices did indeed decline, a short entry signal was triggered.

A way to be prepared for this type of short selling setup is to have a pre-set 5 or 10 day chart that you either check often or have opened when your trading platform opens. I personally have the chart opened up with several others on my trading platform. This way I can see patterns forming as they are evolving.

Using this particular signal would have produced a 1-2% relatively low risk trading opportunity for an intraday trade, or, a 6%+ trading opportunity for those willing to hold overnight.

Remember, this type of price movement is not guaranteed to follow the same path every time. Reversals can occur at any time and everyone should have some type of stop loss in place for protection on their positions.

Some patterns occur more frequently than others, and are more reliable than others. I've found this to be one of the more reliable patterns from my own experience.




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