Page 311 - THE MARKET WHISPERER

THE MARKET WHISPERER 30 7

How to Short at Breakdowns

As noted, shorting at breakdowns is essentially identical to buying at
breakouts, but in reverse. The goal, of course, is to take advantage of the
down-trending momentum of the price. Whereas breakouts are nurtured
by greed, which by its nature weakens once the object is attained,
breakdowns are fed by the fear that fills the investor who sees a stock
crashing before his or her very eyes, and wants to be rid of the holdings as
quickly as possible.

Hysteria takes hold very quickly, and therefore breakdowns are a
favorite of mine, more so than breakouts. Since breakdowns are speedier,
you will need to be faster in your reaction, keeping your finger on the
mouse, but you will generally receive good remunerations faster, too.

The second difference between breakouts and breakdowns is the
timeframe that breakdowns last: which will be as long as the hysteria
continues, and the nature of hysteria is like a house catching on fire. It
erupts fast, but dies down even more quickly. The “festival of lows” will
generally end within one to two hours of commencement, and then a stock
that broke strongly will tend to pull back, or retrace, a considerable part of
its fall. This is also why I generally will not “sleep on” shorts with the same
quantities as I would if I were holding longs for a swing of several days.