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TechniTrader teaches "Selling Short Tips The Pros Use" 

Stock Trends and Stock Market Participant Groups


The sell side of the market aka the downside, is not the same as the upside. One of the big reasons is that when a market is moving up on a long-term aka primary trend ALL 9 Market Participant Groups will be buying stocks, which sustains the trend far longer than the downside.  Bull Markets tend to last 10-15 years where a Bear Market historically lasts 1-3 years. This is an important fact to keep in mind when preparing to sell short, so the first step for selling short is to determine the most likely duration of the correction.

The first Selling Short Tip the Pros use is to determine which trend the correction is on:

  1. Short-term trend
  2. Intermediate-term trend
  3. Long-term trend

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See the weekly view chart example below that has these three trends underlined.

Once you have established what trend is correcting based on whether the short-term, intermediate-term, or long-term uptrend was overextended and too steep to sustain you can then start to establish how price will behave.

The second Selling Short Tip the Pros use is to determine the following:

  1. Which Market Participants will be selling for profit
  2. Which Market Participants will be rotating out prior to the top
  3. Which Market Participants will start the downside selling by selling short
  4. Which groups will have stops taken out, which will increase the sell side momentum
  5. Where price will bounce due to technical AND fundamental support levels

All of those factors impact how stock prices move to the downside.

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Additionally instead of the 9 Market Participant Groups who participate in an uptrend, on the sell side there are far fewer. Only 3-4 groups actually engage in selling short for quick profits. Some Market Participants are unable to sell holdings because of charter or trust requirements. So instead of selling for profit, they will use alternative trading instruments to mitigate their downside risk. These are usually derivatives but can also be opposing trading assets and asset classes.

With only a few Market Participant Groups actually selling short, and with more aggressive price action due to the elimination of the sell short uptick rule, price can move with much more sudden momentum due to voids. Voids are periods when volume evaporates and when this occurs, gaps and long candles running very fast form on the downside.

All of these factors impact selling short. If you are new to trading, selling short takes more time to learn. If you only want to trade the upside, learning the sell side is crucial too.

The third Selling Short Tip the Pros use is that if you understand how and why price behaves the way it does, and if you recognize the footprints of different Market Participant Groups then you will be better able to identify the tops that precede corrections, and the bottoms that start the end of the correction long before the final peak or trough. Relational Analysis™ of downside market activity is an essential trading skill every Retail Trader needs to learn. Retail Traders are those who have learned how to trade the stock market from home.

TechniTrader is "The Gold Standard in Stock Market Education." Go to the TechniTrader.com Learning Center and watch a wide variety of webinars including the "Relational Analysis" webinar, to experience for yourself the excellence of TechniTrader education.

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Trade Wisely,

Martha Stokes CMT

TechniTrader

TechniTrader technical analysis using a TC2000 chart, courtesy of Worden Bros.

Chartered Market Technician
Instructor and Developer of TechniTrader Stock & Option Markets Courses

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