Short Setups are key trading strategies as well, as when markets are bearish, a trader can still make money by going the short route. Here is a couple short charting patterns that you can make use of.
1) Basketball Bounce Fade
This type of chart usually gives a telltale sign that the momentum of the chart is fading and the chart is due for a breakdown into the lows. Look out for the continuous lower highs and enter when the chart pops up. This pattern looks like a basketball bouncing off the surface of the floor and in this case, the floor is the line of support for the graph. You want to see the graph getting tighter and tighter when approaching the area it is going to snap and when it snaps, you can always observe a very quick and sharp pull to the downside.
One thing to note is if the bounce continues for a long period of time and refuses to snap to the downside, you probably want to go ahead and cover your shares just in case it spikes up. Such a pattern would have enticed many people to short into the stock and thus, everybody will be anticipating the snap. If the snap does not happen and the chart starts to crawl back up, those who have entered a short position will be rushing to buy back the stock in order to cover their short position, hence causing a spike upwards. This is also known as a classic short squeeze. Refer to chapter on key terminologies for definition on short squeeze
2) Parabolic Short on Overextended Daily Chart
This is generally not a chart for new traders because the action happens quickly. Parabolic short is very rewarding if done right. You want to watch out for stocks that are overextended on daily chart. An over extended short term chart usually always pulls back sharply before going higher. Check out the chart of GENE below in the morning. GENE has been rising sharply for the past few days. On the intraday chart, the first push of the chart becomes overextended on the one-minute chart at $8.50 and quickly pulls back to almost $8.00.
Once the chart becomes seemingly overextended, you want to take a short position to anticipate this pull back. This kind of trade needs to be entered and exited quickly due to the volatile nature of this type of pattern.