Classic Short Sell Setup by Jamie Theiss
Here’s an example of a classic short setup for daytraders.
Figure 1 is an example of a classic short setup for daytraders. This is a real bread & butter strategy used time and again. To set up this Monday morning trade, the premarket news was bearish with rumors of the country’s credit rating likely to be downgraded. All the market averages were down. So the bears were growling and sentiment was weak. BroadComm (Brcm) is one of 20 or so stocks I follow daily and at the open it frequently puts in a nice red bar, as do most of the other stocks I watch. So this time I stalked it for an entry to the short side.
On the five-minute chart, Brcm put in a nice three-bar pullback to the declining moving averages. Green is the eight-period simple moving average (Sma), while the blue line is the 20-period Sma and the red is the 200-period Sma. I was waiting for a red bar to take out the low of a green bar. This happened at $37.54 and my protective stop was placed a cent above the entry bar at $37.70. This gave me a 16-cent risk on the trade. If we used, for example, $100 as our risk per trade, our position size would have been 630 shares, which I always round down to an even lot size of 600 shares to account for slippage and costs.