The New Sell and Sell Short: How to Take Profits, Cut Losses, and Benefit from Price Declines, Expanded Second Edition

Question 113—False Breakouts and Divergences

Answer

1. B, C, and E

2. A and D

Tops and bottoms tend to be asymmetrical. Technical signals, such as false breakouts and divergences can provide signals to sell short as well as to buy, but the timing is likely to be different. Notice, for example, how a false downside breakout was over in a day, while each of the false upside breakouts lasted for three days. It is harder to place stops on shorts; two days beyond the right edge of this chart the stock stabbed to a new high before collapsing; a tight stop would have led to a whipsaw.