Monthly Archives: August 2018

A Sneak Peek Into The World Of Short Selling

The way that traders made money from the stocks in the past was hugely different from the methods that the traders of the current generation. There was a time when you simply bought a stock, waited for the price movement to point upward and then sold it to take back profits. But then this doesn’t happen all the time, does it? In the market, there is an inherent volatility. For the upward trends to exist there are downward trends as well. Why focus only on the upward trends when you could actually make money even from those stocks that are falling? Today trading is getting highly competitive. If you have a laid-back approach, if you keep holding yourself back from using too much tech then you would be left behind. High-frequency trading, trading with the automated bots, there is so much happening in the trading scenarios across the world. So if you wish to survive the competition without losing your shirt then you definitely have to learn about all the new strategies that make use of every type of market movement to make profits. Of course, in the end, you should focus more on the approach rather than on the money made.

Short selling can benefit every type of traders

Institutional traders and retail traders can all benefit from shorting stocks. You could short any types of stocks. Look for bubbles that are about to burst, there are plenty of them. Markets go up and down- so you should learn to make money in both the directions. This is where short selling helps you. Whether it is a bull market or a bear market you could short stocks. Look for assets that are displaying patterns with a possible reversal event coming close. Short selling expands your opportunities and you can capitalize on stocks that go down beside those that go up. When you finally take the wonderful decision of shorting stocks here are a few things to remember-

  1. Reduce the risks

Not all stocks behave the same way even in similar market conditions. Never forget to have a stop loss strategy in place to protect against stocks that might reach stops at unpredicted times. Keep observing the price movements carefully and have a contingency plan in place.

  1. Liquidity is something you cannot ignore

Shorting stocks can be done only with those that are highly liquid. After all when you want to make quick trades and come out of the stock within a short duration then you would need something that can be sold easily.

  1. Cut your losses at the right time to tackle short squeeze

There are occasions where the short squeeze occurs and the prices increase so fast that you might find it difficult to come out of it quickly. These are those instances where people either buy or sell too quickly. If you act quickly and cut your losses then you can easily handle the situation.

Remember that short selling, like every other strategy has its own risks besides the benefits. So have a strong strategy to handle the risks and to exit promptly.