How to Identify Sell Short Candle Patterns for Swing Trade Entries
Swing Trading Style Selling Short is a skill set that most Retail Traders have not yet mastered. Many traders assume that Selling Short is “bad for the market” or that it creates sell huge sell-offs. However, the SEC MIDAS Computer, which tracks all the Stock Market activity, shows otherwise. The true culprit in a massive sudden sell-off of stocks is due to panic selling by uninformed or less informed investors and new traders. Selling Short actually provides liquidity and support for falling stocks as Swing and Day Trading Professionals Buy to Cover their short positions.
Swing Trading Style Selling Short requires that you are able to identify these distinctly different candlestick patterns:
1. Buy to Cover Candlestick Patterns. These stock price patterns form during a downtrend with swing-style action. The candles nestle into prior longer candles, they are usually very small white candlesticks and are not indecision candles. Strong Buy to Cover candles are actually continuation patterns in many runs down. These candles are created by the typical controlled exit of the Professional Traders who Sell Short during downtrending markets.
2. Buy on the Dip Strategy Candlestick Patterns are very different from the Buy to Cover Candlestick Patterns. The veteran Professional Trader aka Institutional Trader, knows a Market Correction when it appears on their charts, and is ready to Sell Short when the uptrend has ended.
Retail Investors, Retail Traders, and Smaller Funds are the Market Participant Groups responsible for the candlesticks that form a Buy on the Dip pattern.
3. Bargain Hunter Candlestick Patterns. These are the Dark Pool footprints that occur ahead of the final low for the Market Correction of a stock or index. These are very precise controlled entry candlestick patterns. They are often within a tighter range due to the use of Time Weighted Average Price orders as well as other controlled entry orders, which are routed through Dark Pool and Twilight Pool venues.
Martha Stokes CMT
TechniTrader technical analysis using a StockCharts chart, courtesy of StockCharts.com
Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses
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