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low and sell high; you have just reversed the order of the transaction. Don't make it any more difficult than that! |
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Another potential profitable phenomenon associated with short sales is that stock prices tend to move in a smoother fashion when prices are falling than when they are rising. As prices rise, there are always sellers looking to take their profit along the way instead of waiting for the highest peak. This selling activity tends to interrupt the upward movement in stock prices. As you study a price chart, such as shown in Figure 10.6, you will see an upsurgefollowed by the selling-induced pullbackeven in the strongest rally. As a trader, you never know when one of these pullbacks will be the start of a true price reversal to the downside. Often traders exit those trades too soon. |
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As prices fall, many times there are simply no buyers in sight and the price falls in a fairly uninterrupted fashion. Again, on the price charts you can watch the price decline in a smooth, linear fashion. You can sell short and just hang on for a nice long profitable ride. Look at the chart |
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Figure 10.6
Sample Price Chart with Interrupted Rises
Copyright 2000, TradeCast® Ltd. |
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