A trader explains when to cover short positions: wait for price to undercut a prior low, then cover when it rallies back above that low and touches the exponential moving averages. Re-enter shorts once price drops into the EMAs again.
Stocks like to take the staircase up but the elevator down. So short selling is a much more active endeavor for me because the downside that you get comes very quickly as compared to the upside. And so what I would look for in terms of covering my shorts is I'm looking at prior lows on the left-hand side of the chart. So say for example, this was a prior low and we've drawn it here. Typically what stocks would do, it doesn't just slush lower that quickly. What it would do is it would undercut these prior lows and then they would usually rally. So you get these counter-trend rallies into the EMAs and then you roll over again. And so for short sellers, you usually want to cover your position when it undercuts a previous low and reclaims, and then wait for a re-short entry as it trades into the moving averages again.
