Who this entry is for — With "wait, buy, hold, sell and protect-loss" already in the armoury, two signals are missing: sell-short and cover. Nothing new is needed — what is needed is knowing which stock and when the short side makes sense.
Source: J. M. Hurst, The Profit Magic of Stock Transaction Timing, Prentice-Hall, 1970 — Chapter 5, Selling Short (pp. 93–95).
Prerequisites
Trailing sell and take-profit — the sell signal from which the short descends.
Not the same stock
In plain words — You just profited on the long side? Its underlying trend was in your favour. Shorting it now means rowing against that trend: pick another stock, whose underlying sum has already turned down.
Every sell signal automatically implies a sell-short signal — but "it is seldom advisable to sell the same stock short that you have just profited in by making a buy". The reason sits in the model: for the long you chose an issue whose sum of components longer than the trading cycle was trending up — the fundamental 75% rowed with you. Shorting it means bucking that trend, "which cannot lead to yield maximization".
The correct procedure: select another issue in which the sum of the longer components is down, analyse it over time as if you had bought it, and when its trading cycle tops out — sell flare → valid sell-short signal. From there, every long-side technique applies in mirror image: real and non-real-time envelopes, triangles, valid trend lines, trailing protect-profit — until the buy techniques eventually produce the signal that covers the short.
The Averages as compass
In plain words — When the Dow tops on your trading cycle, nearly every stock tops with it (commonality). Trading long against an index on its cyclic downside is, in the book's words, "real suicide". But standing aside violates full investment: you switch to the short side.
Why short at all, if the long side works? Because of synchronization: as the DJ 30 or S&P 500 tops out on your trading cycle — whichever you have chosen — "most individual issues are also near a top-out on this cycle". The sync is not perfect (days, even weeks on the longer components), but the verdict stands. And simply stepping aside violates the principle of 100% time investment of capital.
The operating doctrine, in substance verbatim:
Always treat the Averages just like a stock. Keep a running cyclic analysis going on them, as if it were possible (and you intended) to buy them. As long as that analysis says "buy" or "hold", trade long in individual issues. As your trading cycle nears a top-out in the Averages, liquidate long positions as sell signals are given and begin the hunt for suitable short candidates. The same applies in reverse as the Averages bottom.
Warning — The short doubles the opportunities but changes no rules: same construction, same (mirrored) stops, same discipline. What changes is only the selection criterion — underlying sum pointing down — and the market compass that says when to switch sides.
The chapter's selling rules (its close)
- Valid trend lines completed into short channel segments: the very-short component inside that channel grounds the logical cut-loss.
- Trailing stop levels rest on confirmed lows of the cycle next shorter than the trading cycle.
- Triangle resolution is used all along the line, with cyclic analysis, for insight into further price action.
- Non-real-time envelopes help decide when to switch from trailing levels to short-term sell constructions.
- Valid uptrend lines provide the sensitive take-profit signal.
- Sell-short signals are reverse analogs of buy signals — and shorting significantly improves your percentage of time invested.
Summary card
| Question | The chapter's answer |
|---|---|
| Short the stock just sold? | Almost never: its undercurrent rows against you |
| Which stock to short? | One whose sum of longer components points down |
| When to switch sides? | When the Averages' analysis tops on the trading cycle |
| How to manage the short? | Every long-side technique, mirrored |
| When to cover? | On the buy signal produced by the same techniques |
Links
- Profit management — Chapter 5's framework
- Five principles — the commonality that syncs stocks and indexes
- Trailing sell and take-profit · Cyclic cut-loss
- Hurst tradition — chapter index