Tips for Setting Up a Dedicated Short-Selling Strategy (Part 1)ProShares UltraPro QQQBATS:TQQQQuants_HKWhenever the stock market has been rising for a period, there are always people who are bearish at high levels, even emphasizing that they have entered the market with long puts in anticipation of a major drop. I can assure you that this is mostly untrue, or their "bet" is simply too small. Long puts lose time value, and the market may not actually crash even as they expire, making the cost of constantly rolling over the position very high. If you're trading futures, selling futures at high levels in anticipation of a stock market crash is even more difficult, unless you only sell a small contract; otherwise, the pressure is immense. One trick to a dedicated short-selling strategy is to focus on profiting only from the "middle" part of a downward wave. However, this is easier to handle for short-term trading or day trading, but to make huge profits, even profiting only from the "middle" part is not easy. During the 2008 financial crisis, a friend shorted stock index futures. His method was to sell 10 contracts, then 20, then 40 when a clear downtrend appeared, aiming to profit from the "middle" part of the decline. However, he still encountered rebounds and was asked to "cover" millions of dollars in margin. Although he weathered the storm and made a substantial profit, he frankly admitted that even shorting during a stock market crash is not easy to make money. The speed of a market downturn is much faster than a market upturn, making it impossible to profit from the entire downtrend; you can only profit from the middle part, and you really can't be too greedy. Most importantly, the closing rules established when designing a trading strategy are completely different from those for a bullish one. If you want to profit from the entire downtrend, because downtrends are shorter and the mid-reversal rebounds can be significant, trying to profit from every single one is actually more difficult to manage. The concept of "letting profits roll over" is not suitable for strategies specifically designed for shorting. There are actually many situations that can be used to determine whether to deal with the tail end of a downtrend. For example, look at Order Flow and Delta. Delta represents the difference between market buy orders and market sell orders. In the "middle" of a downtrend, you will see continuous large "aggressive selling." When the downtrend is nearing its end, although the stock price is still making new lows, Delta stops making new lows, and even a "Delta bullish divergence" appears (sellers are placing a large number of market orders, but the price is not falling, indicating that large funds are "absorbing" limit buy orders below). Once you see market buy orders (dynamic active buying) starting to increase continuously and significantly in the Level 2 transaction details, it is a possible time for a rebound. Furthermore, I have already explained VWAP (Volume Weighted Average Price). Many people say that VWAP can reflect the true average holding cost of the market's major funds (large investors, institutions) on that day. However, when trading day trades, you will find that the stock price breaking through or falling below VWAP does not actually have much reference value. In practical applications, VWAP should be analyzed in conjunction with standard deviation. My experience is that when the price breaks below VWAP and enters the "middle" of a downtrend, it usually falls rapidly along the -2 to -3 standard deviations of VWAP. However, when the price accelerates towards the bottom and touches or falls below -5 standard deviations, it indicates that the market is extremely oversold. The chart above shows a 1-minute chart of the Nasdaq 3x Leveraged ETF (US:TQQQ) last night. The black circle represents the "middle" of the intraday downtrend from 10:00 PM to 10:52 PM last night. Of course, this does not necessarily mean the downtrend is over; there is still a possibility of further sharp declines, as market panic is difficult to predict. However, as I have emphasized, we only aim to profit from the "middle" of the downtrend. If the price accelerates and touches or falls below -5 standard deviations, there is a high probability that it has already exceeded the "middle" of the downtrend.