Stan Weinstein
Weinstein Stage 4 short: the bear half of stage analysis, where the stop sits above the entry
The long half of Weinstein's stage framework tells you to own nothing in Stage 4. This system is the other thing he wrote about that stage: for a reader equipped to short, the decline itself is tradable, under rules that mirror the Stage 2 entry. But a short is not a long turned upside down — the loss is unbounded, the shares are borrowed, and the stop sits above the entry. Most of this dossier is about that asymmetry, because it, not the chart reading, is what removes people from the short side.
- Style
- Trend following
- Approach
- Mechanical
- Difficulty
- Intermediate
- Horizon
- Position (weeks to months)
- Holding period
- Weeks to months
- Time needed
- 20 minutes a day while positioned
- Markets
- Liquid single stocks · Index ETFs
- Source
- Secrets for Profiting in Bull and Bear Markets (1988) — the Stage 4 short-sale rules — Stan Weinstein
The rule set
- Stage 4 is price below a 30-week moving average that is itself declining
- Confirm with relative weakness against the market
- Volume should expand on the breakdown, not on the bounces
- Cover when price reclaims the 30-week average
- The stop sits above the entry — a short loses when price rises
What makes it distinctive
- The only system in this library that goes short, and it shows where the stop belongs on a short
- Requires the 30-week average to have rolled over, not merely to have been crossed
- Relative weakness against the market filters out names that are falling only because everything is
When it works
Bear markets, and single names breaking down after a distribution top — the environments where declines are fast, persistent, and keep making lower lows under a falling average.
When it fails
Shorting carries asymmetric risk that going long does not: the loss is unbounded, the borrow can be recalled, and a squeeze can move 30% against you in a session. Markets also rise more often than they fall, so the system is out of position most of the time. It cannot be run without a hard stop.
How a decision moves through it
Input
Daily price, with the market as benchmark
Single names, measured against the broad market. The benchmark matters: one of the three entry tests is relative, and it needs something to be relative to.
Measure
The 30-week average, read on daily bars
A 150-day simple average — the same span as Weinstein's 30-week line, read on a daily series. Two readings come off it: where price sits, and whether the line itself has been falling.
Measure
Relative strength versus the market
The stock's performance against the index over roughly the last three months. Below zero means lagging — falling harder than the market, not just falling with it.
Decide
Stage 4 confirmed: below a falling average, and lagging
Close below the 30-week average, the average measurably lower than it was a month ago, relative strength negative. All three. Below a still-rising average is Stage 3 — a reason to be out, not a reason to be short.
Act
Sell short; cover when price reclaims the average
The cover rule mirrors the entry: the position exists only while price is under the line. A reclaim ends the premise, whatever the profit or loss stands at.
Size & protect
A hard stop 10% above the entry
On a short the stop sits above the entry, because the position loses as price rises. The hard stop is the cap on a loss that has no natural ceiling — it is the one rule here that must never be waived.
The fourth stage, traded instead of avoided
Weinstein's framework classifies every chart into four stages: a base, an advance, a top, a decline. The long system built on it owns only Stage 2 and treats the other three as instructions to be absent. This system is what he wrote for the fourth panel — the decline is itself a trend, and for a reader equipped to short, it is tradable under rules that mirror the Stage 2 entry in reverse.
The mirror is genuinely close. Stage 2 wants price above a rising 30-week average with relative strength improving; Stage 4 wants price below a falling one with relative strength deteriorating. The cover rule — price reclaiming the average — is the reflection of the long system's sell rule. If you have read the stage-analysis dossier, the chart reading here contains one new idea and a great deal of familiar machinery.
What does not mirror: the risk is a different shape
The chart logic reflects cleanly; the position mechanics do not. A long can lose at most what was paid for it, and a winning long grows while a losing one shrinks toward irrelevance. A short is the reverse on every count: the most it can make is the full fall to zero, the most it can lose is unbounded, and it is the losing position that grows — as the price rises against you, the short becomes a larger fraction of the account, not a smaller one.
A long that goes wrong becomes a smaller problem on its own. A short that goes wrong becomes a bigger one. That single sentence is why the sizing and failure pages of this dossier are longer than the rules page.
Add the operational layer — the shares are borrowed, the borrow costs a fee, the lender can recall it, and any dividends paid while short come out of your pocket — and the honest description is that this system has the simplest chart test in the library attached to the most demanding position management in it.
Who this actually suits
Badly suited
- Has never run the long stage system
- No margin account, or unsure what one is
- Wants to short things because they look expensive
- Cannot check a position daily
Well suited
- Already reads stages fluently on the long side
- Understands borrow, margin and recall
- Wants rules for bear markets, not opinions
- Will honour a hard stop without negotiation
The right column is deliberately narrow. This is the one dossier in the library where 'interested beginner' and 'suitable reader' genuinely do not overlap — the beginners' page explains the method and then, in earnest, recommends watching it rather than running it first.
Five ways into this system
- Three conditions make a Stage 4 short, and the slope of the average is the one that mattersBelow the line, the line falling, and lagging the market — all three at once. Two of the tests are familiar from the long system; the slope test is the one that separates a short from a mistake.7 min read
- Sizing a short: the stop is above the entry, and the losing side is the growing sideEverything about risk is mirrored and one thing is not: a short that moves against you gets bigger. Sizing starts from the hard stop and stays smaller than the long side's numbers.7 min read
- Liquid names only, mostly in bear phases — and flat much of the timeThe chart test runs on anything; the position does not. Borrow, liquidity and squeeze exposure narrow the universe to liquid names, and the calendar narrows the opportunity to the market's declining phases.6 min read
- The squeeze, the bear-market rally, and the borrow that vanishesThe long system's failures cost you time and drawdown. This one adds failures that compound while they happen — and one, the squeeze, that is the reason the hard stop exists.7 min read
- Shorting explained from zero: what it is, why it is backwards, and why to watch before tryingSelling something you do not own, to buy it back cheaper. The idea takes a paragraph; the consequences of everything running backwards take the rest of the page — and they are the reason this is a system to understand before it is a system to run.7 min read
The ideas behind it
This system assumes you already know these. Each one is explained from scratch in Investing 101.
Compare with
- Weinstein Stage AnalysisPut every chart into one of four stages, and only own the ones in Stage 2 — above a rising 30-week moving average, breaking out on heavy volume.
- 200-day MA Macro TrendHold the index while it closes above its 200-day average, and sit in cash or short-term bonds while it closes below.
These are documented methods described for study. Nothing here is investment advice, a recommendation, or a claim about future returns — every system on this page has losing periods, and the pages say where.
Reading about a system is not having one.
Plutux is where you write your own rules down, test them against real data, and keep the record your memory would otherwise rewrite. Join the waitlist for early access.