Trading from the Short Side - An Example

How would you decide whether a candidate is suitable for a short trade? Bet you don’t ask your friends, or look up the newspaper for ideas! That is good. If you use Elliott Waves, you'll have an edge. An edge is not a guarantee of success. But it shifts the odds of success in your favor. What follows is an example of how one might approach short selling. I am using LIC of India as an example today, but it hardly matters what the symbol is. You could be trading stocks (or any other instrument) in your own markets, and the approach is basically the same.

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Onwards now to our learning session.

In the Daily chart of LIC of India shown above, the stock has recovered from a low of 715 to the 50% retracement level of approximately 980. We are now in the third step down, which commenced around 937. Can we recover directly and go above the 980 level again? The first thing you should bear in mind when trading is the golden rule: We don’t know the future, and just about anything could happen! That is why we have STOPS!

Remember, we are looking for all impulse waves to be made up of 5 sub-waves. So, the third step down from around 937 should also be in 5 sub-waves. As you can see from the image above, I am working on the paradigm that we have finished the sub wave 3 at around 837. The confluence of the 170.7% projection and the equality measure of minor wave 5 to minor wave 1 (orange labels) at 837 made that a low-risk counter trade point. However, we are now moving higher, and a good place to consider a short trade will be between 855 and 870. Stops at 880, risking no more than 25. Note that we are placing the stop above the minor wave 4 level at 870. After that, you will probably keep adjusting the stop lower as it moves in your favor.

It is important to bear in mind that I am not recommending any trade in this Newsletter/website. This is purely educational material, and you should consult your financial adviser before entering the financial markets!