Strategy – Short Position
Short selling is the ability of selling first and buying back later. It is a day trading strategy commonly used for cfd traders. With CFDs you can position short for as long as you want, so if the market is in correction mode or a recession, you don’t have to stop trading or wait for the next opportunity.
Every trader would develop their own strategy and there is nothing more pleasurable than to know how others do. Learning and following others system could be a good way of trading. As it would take years before a proper strategy is developed and internalize.
To determine a short position entry or exit; the same tools and indicators used for the technical analysis for a long position can be used. It works in the same way, the difference will be that, the entry and exit point will be at the opposite site of the chart.
A chart analysis could involve, four moving average period at 11, 22, 33 and one at either 50,100 or 200. The chart could include, parabolic SAR at 0.09 and 20, a fast and slow stochastic at %k14, Sp3, %d 3 and 3,3,100. A momentum period at 12 and one of the most relevant indicator to me is MACD set at Ima 5,Tma 25, Sma5
When to enter a short position? There are several signals:
- When the moving average 11,22,33 has or is about to intercept each other at the higher part of a down trend.
- When MACD average and divergence line are meeting at the top and a new red trend is illustrated in the chart.
- The Parabolic SAR is showing a new trend.
- Stochastic is showing over bought.
- Momentum is decreasing.
- Is there any resistance or support?
- Any favorable forming pattern?
Once this signal are meet, not always all have to be present, then an entry point come be set.
In the chart bellow, the Entry and Buying back signal are market with a red.
The signal have to be found in different chart times. It will greatly depend upon what do you want to achieve and what length of trade are you in for. It is recommended to always check most chart time, 1 min, 3 min, 15 min, daily, weekly, monthly and yearly charts.
The other important part of this strategy, is the closing of the position. As difficult as it is to enter, it is twice as difficult to exit a trade. When exiting, the trader cannot fail to stick to his plan or become greedy. Exiting or not exiting shall no be asked, it is not about maximising profits, it is about achieving the target and be consistent with the strategy. Once it has reached the target it is best to exit and re-position, rather than extending the trade time.
There are many ways of closing a position as there are traders, remember every body has its own system