Going Short?

Most everyone plays the markets to the long side; meaning buy and hold, or trade hoping for upside appreciation.  Money can be made going long AND short with the Underwearmillionaire approach.

Markets tend to fall fast when they do fall.  From my observations financial markets fall three times faster than they rise. We can attribute this to excess fear.   The takeaway here is fear is fast!

Here are the basics of going short with the Underwearmillionaire system.

System Rules

• Time frame preference>  195m  (2 bars per trading day) or 4 hour, or daily.

• Chart indicators:  RSI(2), MACD 2,6,1), stochastics 13,3,3, 

• TTM-squeeze and Bollinger bands with default settings

• Moving averages:  8 EMA
  
  

Short Entry:

• A MACD 2,6,1 sell signal is given ( the 2 period EMA moves below the 6 period EMA)

• The current price bar closes below the previous bar AND 

• Price closes below the 8EMA AND

• RSI(2) close crosses below 30.

Short Exit:

– price closes above 8 EMA 

Below is a recent 195 Minute chart of the SPY ETF

Items to note:

The entry for the short was 9/13/22 at a price of roughly 402.  A big down day caused the price to move below the 8 EMA, the RSI2 hit 30, the TTM Squeeze histogram at the bottom is sloping down.  Additionally,  the MACD 2,6,1 just below the volume crossed below zero.  All these indicate a high probability of markets trending lower.  

You will also see the red and green swaths on the chart.  This is a 4 and 12 period EMA crossover.  I use this for reference.  If the swatch is red and trending down, I should be looking for shorts, If it is turning green, I should be looking to go long.

This works on any time frame.   However,  for going short I prefer the ½ day  (195 minute) time frame.  Below is a leveraged ETF chart of FNGU, a 3X tech ETF.  The green and red swaths are long and short opportunities.

FNGU on a 195 Minute chart

There are a number of short (and long) opportunities here illustrated.

Below is a daily chart of SOXL, a 3X leveraged semiconductor ETF.

Using the rules for entry and exit as well as the red/green swaths, there are multiple opportunities to go long and short.

If anything the green/red swaths keep you out of harm’s way.  Below is a chart of UPRO, a 3X leveraged ETF of the S&P500 during 2020 and the covid crash.

If you had taken the red short signal to exit or to go short in February, you would have avoided a 70% decline!  Or netted a very nice short depending on your perspective.

The crossover strategy is basic.  However, if you couple it with the RSI, TTM-Squeeze and MACD cross, you can avoid serious losses and or capitalize on going short.   Bull? Bear?  Who cares, trade the trend.

Happy Trading!