Bounce Risk for Selling ShortStocks that are falling rapidly often have the illusion that they will never stop falling. The panic that settles into the mindset of an investor who is watching his or her profits and capital erode overnight can overwhelm a stock’s price action. So for a brief time, the stock can behave outside of what the chart patterns would suggest was reasonable. But the higher risk is always the bounce.
Stocks can bounce without warning. Huge up days that form in a downtrend can cause significant losses for short sellers.
A stock bounces because it hits a price point where:
1. b uyers are waiting to go long
2. where large-lot short sellers are preparing to exit
Monthly and yearly highs are areas where there is risk for a bounce. These bounces are often caused by small-lot investors and traders perceiving this as a good place to buy a stock that has corrected. The old adage, “buy low and sell high,” prompts the uninformed to buy as a stock is running down without understanding the dynamics of a downtrend. So they buy at monthly and yearly highs when they are called out by the various news and trading chat forums: “XYZ has hit its 52-week price, this is a good time to buy XYZ.”
Another big bounce area is far more important: the monthly lows and yearly lows. This is the price range where the wiser bargain hunters and bottom fishers lurk around. They know that low area is solid support and that a downtrending correction isn’t going to last on a strong company. Therefore, lows pose even bigger risk of bounces that actually can reverse the downtrend, especially if the steep descent has been underway for some time.
A stock may nearly pierce through a sturdy support level, reach the yearly low and then suddenly make a V-shaped short-term bottom or shift sideways depending upon the strength of the stock and company. These sudden changes of trend catch many short traders unaware and create larger losses than monthly and yearly highs.
Sideways patterns also create sturdy support levels where large bounces can occur for the rapidly falling stock. Moving averages for long-term trendlines are another area of strong support where bounce risk is high.
How to avoid bounces for selling short:
Identify each area where a stock could bounce. This includes the highs and lows of sideways action from prior years. Identify long-term moving average support on weekly charts. Identify monthly and yearly the highs and lows.
After you have identified all support areas, determine if this support will be weak, moderate, or strong. Weak support will seldom cause problems for a falling stock and usually a resting day, at best, will form. Moderate support can cause a bounce that can take out tight stop losses and strong support can potentially wipe out a wider stop loss for a bigger loss.
It is important to calculate the point gain to the lean side when selling short because bounces can occur before the support is actually touched. And do not be fooled by the falling stock that runs just beyond the support level--often a small run beyond the lowest low is just a ‘gottcha’ sell short entry for bargain hunters. This is the area where you will find the larger reversal candle patterns.
Selling short is a faster-paced trading condition. It can be more lucrative with faster profits than the upside at times, but you must have plenty of experience to watch for high-risk areas in the downtrend and a strong mental attitude that allows you to cut losses quickly.
DAC
PEP - STOCKS - 11. OCT. 2021Welcome to our Weekly V2-Trade Setup ( PEP ) !
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4 HOUR
Solid performance and data.
DAILY
Expecting more bullish price action!
WEEKLY
Great long entries, underprices imo..
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STOCK SETUP
BUY PEP
ENTRY LEVEL @ 156.92
SL @ 149.40
TP @ Open
Max Risk: 0.5% - 1%!
(Remember to add a few pips to all levels - different Brokers!)
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Have a great week everyone!
ALAN
WFC - STOCKS - 11. OCT. 2021Welcome to our Weekly V2-Trade Setup ( WFC ) !
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4 HOUR
Bullish break above main sr level..
DAILY
Expecting more bullish pa!
WEEKLY
Great midterm long entries.
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STOCK SETUP
BUY WFC
ENTRY LEVEL @ 47.36
SL @ 44.78
TP @ Open
Max Risk: 0.5% - 1%!
(Remember to add a few pips to all levels - different Brokers!)
Leave us a comment or like to keep our content for free and alive.
Have a great week everyone!
ALAN
BRK.B - STOCKS - 11. OCT. 2021Welcome to our Weekly V2-Trade Setup ( BRK.B ) !
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4 HOUR
Bullish market open..
DAILY
Expecting more buyers shortly..
WEEKLY
Market about to turn in my view.
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STOCK SETUP
BUY BRK.B
ENTRY LEVEL @ 285.25
SL @ 272.86
TP @ Open
Max Risk: 0.5% - 1%!
(Remember to add a few pips to all levels - different Brokers!)
Leave us a comment or like to keep our content for free and alive.
Have a great week everyone!
ALAN
ABBV - STOCKS - 11. OCT. 2021Welcome to our Weekly V2-Trade Setup ( ABBV ) !
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4 HOUR
Slowly rising market structure.
DAILY
Expecting a pushback to previous wave highs at least..
WEEKLY
Great long entries!
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STOCK SETUP
BUY ABBV
ENTRY LEVEL @ 111.19
SL @ 107.66
TP @ Open
Max Risk: 0.5% - 1%!
(Remember to add a few pips to all levels - different Brokers!)
Leave us a comment or like to keep our content for free and alive.
Have a great week everyone!
ALAN
MA - STOCKS - 11. OCT. 2021Welcome to our Weekly V2-Trade Setup ( MA ) !
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4 HOUR
Bullish market closure!
DAILY
Expecting more upside after a small pullback.
WEEKLY
Great long entries, following midterm trend.
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STOCK SETUP
BUY MA
ENTRY LEVEL @ 352.97
SL @ 338.87
TP @ Open
Max Risk: 0.5% - 1%!
(Remember to add a few pips to all levels - different Brokers!)
Leave us a comment or like to keep our content for free and alive.
Have a great week everyone!
ALAN
V - STOCKS - 11. OCT. 2021Welcome to our Weekly V2-Trade Setup ( V ) !
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4 HOUR
Market about to turn.
DAILY
Expecting more bullish price action.
WEEKLY
Buying the turnover!
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STOCK SETUP
BUY V
ENTRY LEVEL @ 229.37
SL @ 220.54
TP @ Open
Max Risk: 0.5% - 1%!
(Remember to add a few pips to all levels - different Brokers!)
Leave us a comment or like to keep our content for free and alive.
Have a great week everyone!
ALAN
INTC - STOCKS - 11. OCT. 2021Welcome to our Weekly V2-Trade Setup ( INTC ) !
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4 HOUR
Great market structure..
DAILY
Looking for more upside price action!
WEEKLY
Expecting a price turnover in most tech stocks..
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STOCK SETUP
BUY INTC
ENTRY LEVEL @ 53.68
SL @ 53.03
TP @ Open
Max Risk: 0.5% - 1%!
(Remember to add a few pips to all levels - different Brokers!)
Leave us a comment or like to keep our content for free and alive.
Have a great week everyone!
ALAN
Easy 300+ pips, dont miss! - CADJPY - SELLAfter analysis i can say we will see much more bigger down trend. JPY is one of the strongest currencys. CAD ws JPY cant today to do to much, they are lose some power from OIL negotations, technicaly looks good for bigger sell.
ENTRY: 80.940+-
TP1: 80.640
SL: 81.260
Chart time frame - 1D
Time for reaching TP - 8 - 72 hours
More information soon!
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All best!
USDCAD - SETUP - WEEKLY CONTINUATION - 18 JUNEWELCOME TO DACAPITAL TRADING!!
EURUSD just started moving as expected, quick Timeframe breakdown for free and everybody.
4 HOUR
Strong 40 Pips break over previous week high indicating long pressure
DAILY
explosive last two weeks, we follow this move
WEEKLY
Strong Closure above Monthly High on Weekly TF
LEVELS
LONG @ 1.32300
SL @ 1.31720
TP1 @ 1.32814
TP2 @ 1.33198
TP3 @ 1.33483
Weekly trend continuation, move SL to BE if TP1 hit and close partial Profits at every TP Level.!
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DACAPITAL TRADING