In and Out: The Mechanics of Short-Selling

Any fool can go back with benefit of hindsight, pick out a pile of historical weekly charts of former big-stock leaders after they topped and broke down, and draw arrows with the caption “Short-Sale Point” at every spot on the weekly chart where the stock rolled over and went lower. Unfortunately, one's trading and investment operations, whether on the long side or the short side of the market, are conducted in real time, where one does not have the unrealistic advantage of being able to look backward and see exactly what happened and how a particular stock's trend unfolded. In my view, it is at best simplistic and at worst deceitful to pretend that one can master the art of short-selling without breaking it down to what is happening on the daily chart. This is the primary failing of the first book I wrote on short-selling as a “co-author” with William J. O'Neil, How to Make Money Selling Stocks Short, and it is something that I have sought to correct in subsequent books with which I have been involved that discuss the topic of short-selling. The truth is that if I lived in a world where I had the option of only looking at weekly charts or only looking at daily charts when implementing my short-sale methods, I would without hesitation choose daily charts. While understanding how the macro-patterns develop on the weekly charts is extremely useful to the short-selling process, determining exactly where and how I place my short-sale ...

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