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The New Sell and Sell Short: How To Take Profits, Cut Losses, and Benefit From Price Declines, 2nd Edition

ISBN: 978-1-118-00557-6
368 pages
February 2011
The New Sell and Sell Short: How To Take Profits, Cut Losses, and Benefit From Price Declines, 2nd Edition (1118005570) cover image
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.

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Introduction xv

WHY SELL? xv

ABOUT THE Q&A xvii

PART ONE PSYCHOLOGY, RISK MANAGEMENT, & RECORD-KEEPING 1

Chapter 1 On Buying 3

THE THREE GREAT DIVIDES 3

ONE TRADER’S TOOLBOX 7

Chapter 2 Trading Psychology and Risk Management 9

YOUR MIND AS A TRADING TOOL 9

RISK CONTROL 11

Chapter 3 On Keeping Records 13

GOOD RECORDS LEAD TO GOOD TRADING 13

TRADER’S SPREADSHEET—BASIC ACCOUNTABILITY 14

TRADING DIARY—YOUR KEY TO LASTING SUCCESS 16

HOW TO DOCUMENT YOUR TRADING PLAN 20

MARGRET’S METHOD—PUT IT ON THE WALL 24

HOW TO GRADE YOUR PERFORMANCE 24

TWO TYPES OF TRADING 26

Questions 29

Answers 45

PART TWO HOW TO SELL 57

Chapter 4 Selling at a Target 61

SELLING AT A MOVING AVERAGE 63

SELLING AT ENVELOPES OR CHANNELS 71

SELLING AT RESISTANCE LEVELS 83

Chapter 5 Selling on a Stop 95

THE IRON TRIANGLE 97

MARKET OR LIMIT ORDERS 99

HARD AND SOFT STOPS 101

A BAD PLACE 102

REDUCING SLIPPAGE—TIGHTER BY A PENNY 109

NIC’S STOP—TIGHTER BY A DAY 110

WHEN TO USE WIDER STOPS 117

MOVING STOPS 120

A SAFEZONE STOP 123

VOLATILITY-DROP TRAILING STOPS 124

Chapter 6 Selling “Engine Noise” 129

WEAKENING MOMENTUM 130

AN “ENGINE NOISE” EXIT FROM A SHORT-TERM TRADE 132

A DISCRETIONARY EXIT FROM A LONG-TERM TRADE 135

SELLING BEFORE EARNINGS REPORTS 139

THE MARKET RINGS A BELL 143

TRADING WITH THE NEW HIGH–NEW LOW INDEX 148

THE DECISION TREE FOR SELLING 151

Questions 157

Answers 183

PART THREE HOW TO SELL SHORT 203

Chapter 7 Shorting Stocks 207

YOUR FIRST SHORTS 211

THE ASYMMETRY OF TOPS AND BOTTOMS 214

SHORTING TOPS 216

SHORTING DOWNTRENDS 221

SHORTING FUNDAMENTALS 224

FINDING STOCKS TO SHORT 233

SHORT INTEREST 237

Chapter 8 Shorting Non-Equity Instruments 243

SHORTING FUTURES 243

WRITING OPTIONS 252

FOREX 258

QUESTIONS 265

Answers 279

PART FOUR LESSONS OF THE BEAR MARKET 291

Chapter 9 Bears Make Money 293

THE BEAR WAS BEGINNING TO STIR IN ITS CAVE 293

THE SENTIMENT INDICATORS ARE EARLY 295

THE TOP OF THE BULL MARKET 297

BEARISH DIVERGENCE AT THE 2007 TOP 299

THE BUBBLE POPS: MGM 300

SHORTING A HIGH-FLYER 302

A BEAR MARKET IS A DESTROYER OF VALUE 304

SWINGING IN AND OUT OF A MAJOR DOWNTREND 307

TRADING IN A DOWNCHANNEL 308

PREPARED FOR A SURPRISE 310

“BULL MARKETS HAVE NO RESISTANCE

AND BEAR MARKETS HAVE NO SUPPORT” 312

FOR WHOM THE BELL TOLLS OR THE HOUND BARKS TWICE 315

MR. BUFFETT BUYS TOO SOON 317

MAY I POUR SOME GASOLINE ON YOUR FIRE? 319

KEEP SHORTING ON THE WAY DOWN 321

Chapter 10 Groping for a Bottom 325

THIS STOCK MARKET IS NOT GOING DOWN TO ZERO 325

A “DOUBLE HELIX” GIVES A BUY SIGNAL 327

JUST IN TIME FOR THE PARTY 328

MY FAVORITE MAJOR BOTTOM SIGNAL 331

SELLING A BULL 332

EVERY BULL STUMBLES 335

A SCREAMING SHORT 337

Conclusion 341

HANDLING PROFITS—THE PERSONAL DIVIDEND 342

THE ROAD INTO THE FUTURE 343

References 345

Acknowledgments 347

About the Author 349

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DR. Alexander Elder is a professional trader, a teacher of traders, and a psychiatrist. He is the founder of elder.com and SpikeTrade.com—both of which provide educational services to traders worldwide. Dr. Elder is the author of three bestselling books, Trading for a Living (translated into more than a dozen languages), Come Into My Trading Room (2002 Barron's Book of the Year), and Entries and Exits (2007 SFO Magazine Book of the Year).
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