O'Reilly logo

Short-Selling with the O'Neil Disciples: Turn to the Dark Side of Trading by Chris Kacher, Gil Morales

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

CHAPTER 3

Short-Selling Set-Ups: Chart Patterns for the Dark Side

On the way up, leading stocks will form certain chart patterns that identify and confirm their technical health. These chart patterns result from the pattern of accumulation in the stock by institutional investors, including mutual funds, pension funds, hedge funds, and trusts as they build their positions over a period of time that may range from a few months to a few years. They are quite literally the “footprints” of institutional buyers as they conduct their intermediate to longer-term operations in a particular big-stock leader. By the same token, institutional selling and distribution that occurs when these same institutions reduce their positions in a leading stock also has specific “footprints” in the various topping chart patterns that take shape as a big-stock leader ends its upside life-cycle and begins a period of decline characterized by a pattern of distribution. Short-selling is all about the techniques, as leading stocks generally top when the fundamental picture is quite rosy, so the price/volume action and the chart patterns it carves out are an important and primary driver in the analysis and decision process.

There are three primary short-selling set-ups that we use: the head-and-shoulders (H&S) top, the late-stage failed-base (LSFB), and the punchbowl of death (POD), which is essentially a massive double-top of sorts. Each has its own unique characteristics, but sometimes patterns can overlap ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required