You are previewing The New Sell and Sell Short: How to Take Profits, Cut Losses, and Benefit from Price Declines, Expanded Second Edition.
O'Reilly logo
The New Sell and Sell Short: How to Take Profits, Cut Losses, and Benefit from Price Declines, Expanded Second Edition

Book Description

A detailed look at one of the most underestimated aspects of trading-selling

In The New Sell and Sell Short, Second Edition, Dr. Alexander Elder explains how to exit a stock at the right time and how to initiate a short position to profit from a stock that is showing weakness. Often overlooked, selling properly enables a trader to cut losses and maximize profits. Moreover, short selling in a weak market can generate big profits and should be a part of every trader's arsenal of tools. The new edition contains numerous examples of short selling stocks from the 2008-2009 bear market, demonstrating very clearly why traders do themselves a disservice by only focusing on the long side. In addition, the new edition contains an extensive study guide to help readers master the material prior to trading.

Elder shares real-world examples that show how to manage your positions by adjusting your exit points as a trade unfolds.

  • Contains new examples and insights from the 2008-2009 market meltdown
  • Includes an extensive study guide with 115 questions and answers and 17 chart studies
  • Discusses the selling process from a variety of angles: technical, fundamental, and psychological
  • Explains how to maximize winnings in a profitable trade and how to minimize losses when a trade doesn't go as planned
  • Offers detailed guidance for traders of stocks, financial futures, commodities, and currencies
  • Explains how to set profit targets and stop-loss orders prior to entering any trade Other bestselling titles by Elder: Trading for a Living, Come Into My Trading Room, and Entries and Exits

Understanding where and when to sell is essential to successful trading. The New Sell and Sell Short, Second Edition is the definitive reference to this overlooked, but vitally important, aspect of trading.

Table of Contents

  1. WILEY TRADING SERIES
  2. BOOKS BY DR. ALEXANDER ELDER
  3. Title Page
  4. Copyright Page
  5. Dedication
  6. Introduction
    1. WHY SELL?
    2. ABOUT THE Q&A
  7. PART ONE - PSYCHOLOGY, RISK MANAGEMENT, & RECORD-KEEPING
    1. CHAPTER 1 - ON BUYING
      1. THE THREE GREAT DIVIDES
      2. ONE TRADER’S TOOLBOX
    2. CHAPTER 2 - TRADING PSYCHOLOGY AND RISK MANAGEMENT
      1. YOUR MIND AS A TRADING TOOL
      2. RISK CONTROL
    3. CHAPTER 3 - ON KEEPING RECORDS
      1. GOOD RECORDS LEAD TO GOOD TRADING
      2. TRADER’S SPREADSHEET—BASIC ACCOUNTABILITY
      3. TRADING DIARY—YOUR KEY TO LASTING SUCCESS
      4. HOW TO DOCUMENT YOUR TRADING PLAN
      5. MARGRET’S METHOD—PUT IT ON THE WALL
      6. HOW TO GRADE YOUR PERFORMANCE
      7. TWO TYPES OF TRADING
    4. PART ONE QUESTIONS - PSYCHOLOGY, RISK MANAGEMENT, & RECORD-KEEPING
      1. Question 1—The Stress of Holding a Position
      2. Question 2—Your Trading Edge
      3. Question 3—The Three Great Divides
      4. Question 4—Price and Value
      5. Question 5—Fundamental and Technical Analysis
      6. Question 6—Trend vs. Counter-Trend Trading
      7. Question 7—Systematic vs. Discretionary Trading
      8. Question 8—Technical Toolbox
      9. Question 9—Trading Psychology
      10. Question 10—Trading Discipline
      11. Question 11—Dealing with Losses
      12. Question 12—Overtrading
      13. Question 13—The 2% Rule
      14. Question 14—Modifying the 2% Rule
      15. Question 15—The 6% Rule
      16. Question 16—The Top Two Goals for Every Trade
      17. Question 17—Learning from Experience
      18. Question 18—A Record-Keeping Spreadsheet
      19. Question 19—Trading Mistakes
      20. Question 20—Trader’s Diary
      21. Question 21—Diary Entry
      22. Question 22—Trading Plan vs. Diary
      23. Question 23—The Monitoring Screen
      24. Question 24—Comments on the Screen
      25. Question 25—Pinning a Chart to a Wall
      26. Question 26—Sources of Trading Ideas
      27. Question 27—Grading Buys and Sells
      28. Question 28—Grading Completed Trades
      29. Question 29—Buying
      30. Question 30—Value
      31. Question 31—A Trade Diary
      32. Question 32—Grading a Trade
      33. Question 33—Value Buying vs. Momentum Buying
    5. ANSWERS TO QUESTIONS - PART ONE: PSYCHOLOGY, RISK MANAGEMENT, & RECORD-KEEPING
      1. Question 1—The Stress of Holding a Position
      2. Question 2—Your Trading Edge
      3. Question 3—The Three Great Divides
      4. Question 4—Price and Value
      5. Question 5—Fundamental and Technical Analysis
      6. Question 6—Trend vs. Counter-Trend Trading
      7. Question 7—System vs. Discretionary Trading
      8. Question 8—Technical Toolbox
      9. Question 9—Trading Psychology
      10. Question 10—Trading Discipline
      11. Question 11—Dealing with Losses
      12. Question 12—Overtrading
      13. Question 13—The 2% Rule
      14. Question 14—Modifying the 2% Rule
      15. Question 15—The 6% Rule
      16. Question 16—The Top Two Goals for Every Trade
      17. Question 17—Learning from Experience
      18. Question 18—A Record-Keeping Spreadsheet
      19. Question 19—Trading Mistakes
      20. Question 20—Trader’s Diary
      21. Question 21—Diary Entry
      22. Question 22—Trading Plan vs. Diary
      23. Question 23—The Monitoring Screen
      24. Question 24—Comments on the Screen
      25. Question 25—Pinning a Chart to a Wall
      26. Question 26—Sources of Trading Ideas
      27. Question 27—Grading Buys and Sells
      28. Question 28—Grading Completed Trades
      29. Question 29—Buying
      30. Question 30—Value
      31. Question 31—A Trade Diary
      32. Question 32—Grading a Trade
      33. Question 33—Value Buying vs. Momentum Buying
      34. GRADING YOUR ANSWERS
  8. PART TWO - HOW TO SELL
    1. THE THREE TYPES OF SELLING
    2. CHAPTER 4 - SELLING AT A TARGET
      1. SELLING AT A MOVING AVERAGE
      2. SELLING AT ENVELOPES OR CHANNELS
      3. SELLING AT RESISTANCE LEVELS
    3. CHAPTER 5 - SELLING ON A STOP
      1. THE IRON TRIANGLE
      2. MARKET OR LIMIT ORDERS
      3. HARD AND SOFT STOPS
      4. A BAD PLACE
      5. REDUCING SLIPPAGE—TIGHTER BY A PENNY
      6. NIC’S STOP—TIGHTER BY A DAY
      7. WHEN TO USE WIDER STOPS
      8. MOVING STOPS
      9. A SAFEZONE STOP
      10. VOLATILITY-DROP TRAILING STOPS
    4. CHAPTER 6 - SELLING “ENGINE NOISE”
      1. WEAKENING MOMENTUM
      2. AN “ENGINE NOISE” EXIT FROM A SHORT-TERM TRADE
      3. A DISCRETIONARY EXIT FROM A LONG-TERM TRADE
      4. SELLING BEFORE EARNINGS REPORTS
      5. THE MARKET RINGS A BELL
      6. TRADING WITH THE NEW HIGH—NEW LOW INDEX
      7. THE DECISION TREE FOR SELLING
    5. PART TWO QUESTIONS - HOW TO SELL
      1. Question 34—A Plan for Selling
      2. Question 35—The Three Types of Selling
      3. Question 36—Planning to Sell
      4. Question 37—Targets for Selling
      5. Question 38—A Stock Below Its Moving Average
      6. Question 39—Moving Averages as Selling Targets
      7. Question 40—Regrets About Selling
      8. Question 41—EMA as a Profit Target
      9. Question 42—Channels as Price Targets
      10. Question 43—Measuring Performance Using Channels
      11. Question 44—Selling Targets
      12. Question 45—Reaching for More
      13. Question 46—The Top of a Rally
      14. Question 47—Prices above the Upper Channel Line
      15. Question 48—Profit Targets
      16. Question 49—Support and Resistance Zones
      17. Question 50—A Protective Stop
      18. Question 51—Breaking through Resistance
      19. Question 52—A Trade without a Stop
      20. Question 53—Changing Stops
      21. Question 54—Re-entering a Trade
      22. Question 55—Deciding Where to Set a Stop
      23. Question 56—The Impact of the Last Trade
      24. Question 57—“The Iron Triangle”
      25. Question 58—A Limit Order
      26. Question 59—Soft Stops
      27. Question 60—A Stop One Tick below the Latest Low
      28. Question 61—A Stop at the Level of the Previous Low
      29. Question 62—A Stop That Is “Tighter by a Day”
      30. Question 63—Trade Duration
      31. Question 64—Wider Stops
      32. Question 65—Moving Stops
      33. Question 66—The SafeZone Stop
      34. Question 67—Trading with the SafeZone
      35. Question 68—The Volatility-Drop Method
      36. Question 69—“Engine Noise” in the Markets
      37. Question 70—Selling “Engine Noise”
      38. Question 71—New High-New Low Index
      39. Question 72—Not Liking Market’s Action
      40. Question 73—Earnings Reports
      41. Question 74—The Market “Rings a Bell”
      42. Question 75—Trading with the New High-New Low Index
      43. Question 76—A Decision-Making Tree vs. a Trading System
      44. Question 77—A Decision-Making Tree
      45. Question 78—Value Buying and Selling Targets
      46. Question 79—Support, Resistance, and Targets
      47. Question 80—Multiple Targets
      48. Question 81—Holding, Adding, or Profit-Taking
      49. Question 82—Handling a Profitable Trade
      50. Question 83—Placing a Stop
      51. Question 84—The Impulse System
      52. Question 85—The Signals of NH-NL
      53. Question 86—The Decision at the Right Edge of the Chart
    6. ANSWERS TO QUESTIONS - PART TWO: HOW TO SELL
      1. Question 34—A Plan for Selling
      2. Question 35—The Three Types of Selling
      3. Question 36—Planning to Sell
      4. Question 37—Targets for Selling
      5. Question 38—A Stock Below Its Moving Average
      6. Question 39—Moving Averages as Selling Targets
      7. Question 40—Regrets About Selling
      8. Question 41—EMA as a Profit Target
      9. Question 42—Channels as Price Targets
      10. Question 43—Measuring Performance Using Channels
      11. Question 44—Selling Targets
      12. Question 45—Reaching for More
      13. Question 46—The Top of a Rally
      14. Question 47—Prices above the Upper Channel Line
      15. Question 48—Profit Targets
      16. Question 49—Support and Resistance Zones
      17. Question 50—A Protective Stop
      18. Question 51—Breaking through Resistance
      19. Question 52—A Trade without a Stop
      20. Question 53—Changing Stops
      21. Question 54—Re-entering a Trade
      22. Question 55—Deciding Where to Set a Stop
      23. Question 56—The Impact of the Last Trade
      24. Question 57—“The Iron Triangle”
      25. Question 58—A Limit Order
      26. Question 59—Soft Stops
      27. Question 60—A Stop One Tick below the Latest Low
      28. Question 61—A Stop at the Level of the Previous Low
      29. Question 62—A Stop That Is “Tighter by a Day”
      30. Question 63—Trade Duration
      31. Question 64—Wider Stops
      32. Question 65—Moving Stops
      33. Question 66—The SafeZone Stop
      34. Question 67—Trading with the SafeZone
      35. Question 68—The Volatility-Drop Method
      36. Question 69—“Engine Noise” in the Markets
      37. Question 70—Selling “Engine Noise”
      38. Question 71—New High-New Low Index
      39. Question 72—Not Liking Market’s Action
      40. Question 73—Earnings Reports
      41. Question 74—The Market “Rings a Bell”
      42. Question 75—Trading with the New High-New Low Index
      43. Question 76—A Decision-Making Tree vs. a Trading System
      44. Question 77—A Decision-Making Tree
      45. Question 78—Value Buying and Selling Targets
      46. Question 79—Support, Resistance, and Targets
      47. Question 80—Multiple Targets
      48. Question 81—Holding, Adding, or Profit-Taking
      49. Question 82—Handling a Profitable Trade
      50. Question 83—Placing a Stop
      51. Question 84—The Impulse System
      52. Question 85—The Signals of NH-NL
      53. Question 86—The Decision at the Right Edge of the Chart
      54. GRADING YOUR ANSWERS
  9. PART THREE - HOW TO SELL SHORT
    1. CHAPTER 7 - SHORTING STOCKS
      1. YOUR FIRST SHORTS
      2. THE ASYMMETRY OF TOPS AND BOTTOMS
      3. SHORTING TOPS
      4. SHORTING DOWNTRENDS
      5. SHORTING FUNDAMENTALS
      6. FINDING STOCKS TO SHORT
      7. SHORT INTEREST
    2. CHAPTER 8 - SHORTING NON-EQUITY INSTRUMENTS
      1. SHORTING FUTURES
      2. WRITING OPTIONS
      3. FOREX
    3. PART THREE QUESTIONS - HOW TO SELL SHORT
      1. Question 87—Shorting a Stock
      2. Question 88—Risk Factors in Shorting
      3. Question 89—The Impact of Shorting
      4. Question 90—Short vs. Long
      5. Question 91—Disadvantages of Shorting
      6. Question 92—Learning to Sell Short
      7. Question 93—Shorting vs. Buying
      8. Question 94—Shorting Stock Market Tops
      9. Question 95—Shorting in Downtrends
      10. Question 96—The Tactics of Shorting Downtrends
      11. Question 97—Shorting the Fundamentals
      12. Question 98—Looking for Shorting Candidates
      13. Question 99—The Short Interest Ratio
      14. Question 100—Trading the Short Interest Ratio
      15. Question 101—Markets Need Shorting
      16. Question 102—Who Shorts Futures
      17. Question 103—Shorting Futures
      18. Question 104—Long Rallies and Sharp Breaks
      19. Question 105—Writing Options
      20. Question 106—Writing Covered Options
      21. Question 107—Naked vs. Covered Writing
      22. Question 108—The Demands of Naked Writing
      23. Question 109—Brokers Against Traders
      24. Question 110—Forex Market
      25. Question 111—Learning to Become a Better Trader
      26. Question 112—Trading Signals of the Force Index
      27. Question 113—False Breakouts and Divergences
      28. Question 114—Shorting and Covering Signals
      29. Question 115—Shorting Tactics
    4. ANSWERS TO QUESTIONS - PART THREE: HOW TO SELL SHORT
      1. Question 87—Shorting a Stock
      2. Question 88—Risk Factors in Shorting
      3. Question 89—The Impact of Shorting
      4. Question 90—Short vs. Long
      5. Question 91—Disadvantages of Shorting
      6. Question 92—Learning to Sell Short
      7. Question 93—Shorting vs. Buying
      8. Question 94—Shorting Stock Market Tops
      9. Question 95—Shorting in Downtrends
      10. Question 96—The Tactics of Shorting Downtrends
      11. Question 97—Shorting the Fundamentals
      12. Question 98—Looking for Shorting Candidates
      13. Question 99—The Short Interest Ratio
      14. Question 100—Trading the Short Interest Ratio
      15. Question 101—Markets Need Shorting
      16. Question 102—Who Shorts Futures
      17. Question 103—Shorting Futures
      18. Question 104—Long Rallies and Sharp Breaks
      19. Question 105—Writing Options
      20. Question 106—Writing Covered Options
      21. Question 107—Naked vs. Covered Writing
      22. Question 108—The Demands of Naked Writing
      23. Question 109—Brokers Against Traders
      24. Question 110—Forex Market
      25. Question 111—Learning to Become a Better Trader
      26. Question 112—Trading Signals of the Force Index
      27. Question 113—False Breakouts and Divergences
      28. Question 114—Shorting and Covering Signals
      29. Question 115—Shorting Tactics
      30. GRADING YOUR ANSWERS
  10. PART FOUR - LESSONS OF THE BEAR MARKET
    1. CHAPTER 9 - BEARS MAKE MONEY
      1. THE BEAR WAS BEGINNING TO STIR IN ITS CAVE
      2. THE SENTIMENT INDICATORS ARE EARLY
      3. THE TOP OF THE BULL MARKET
      4. BEARISH DIVERGENCES AT THE 2007 TOP
      5. THE BUBBLE POPS: MGM
      6. SHORTING A HIGH-FLYER
      7. A BEAR MARKET IS A DESTROYER OF VALUE
      8. SWINGING IN AND OUT OF A MAJOR DOWNTREND
      9. TRADING IN A DOWNCHANNEL
      10. PREPARED FOR A SURPRISE
      11. “BULL MARKETS HAVE NO RESISTANCE AND BEAR MARKETS HAVE NO SUPPORT”
      12. FOR WHOM THE BELL TOLLS OR THE HOUND BARKS TWICE
      13. MR. BUFFETT BUYS TOO SOON
      14. MAY I POUR SOME GASOLINE ON YOUR FIRE?
      15. KEEP SHORTING ON THE WAY DOWN
    2. CHAPTER 10 - GROPING FOR A BOTTOM
      1. THIS STOCK MARKET IS NOT GOING DOWN TO ZERO
      2. A “DOUBLE HELIX” GIVES A BUY SIGNAL
      3. JUST IN TIME FOR THE PARTY
      4. MY FAVORITE MAJOR BOTTOM SIGNAL
      5. SELLING A BULL
      6. EVERY BULL STUMBLES
      7. A SCREAMING SHORT
  11. CONCLUSION
  12. REFERENCES
  13. Acknowledgments
  14. ABOUT THE AUTHOR