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  • Why I Rarely Short Stocks πŸ“‰

    As a seasoned trader for many years, I can tell you that +95% of my trades have been on the long side for a good reason. Shorting stocks goes against the natural tendency of stocks. Here are my two main reasons for not being as equally short as I am long:

    Stocks are supposed to go up

    Before you bite my head off please pay attention to the key word...supposed.

    No company has ever been listed with the hope that the price of its stock goes lower. Companies go public to raise capital and hopefully expand. The entire idea of the stock market has always been for stocks to go through the roof. Investors want their stock to go through the roof. Mutual funds and other investment vehicles are always looking for the next big riser so anybody betting the other way is probably just in for some mediocre results. I've studied my own results from shorting as well as other traders and I've noticed that most of us ended up with about breakeven results.

    Stocks don't have to go up but they are supposed to. The natural tendency of stocks is to go up.


    Here is a passage from one of my favorite market books by Marty Schwartz on shorting:

    "With the strength of the market over the past several years, I use futures to go short, rather than shorting individual stocks."

    That is pretty much my philosophy also. I would much rather short an index ETF(SPY, QQQ, DIA) than individual stocks.



    The general public knows nothing about short selling

    When the retail traders and investors of the world want to put money into the market they are usually long because they want a stock that will skyrocket. Individual traders and investors have a bigger impact on the market than you may think. Individually they may not wield much power but altogether they can push individual stocks up just as much as institutional investors. I wouldn't want to bet on a short against numerous traders and investors who are long-biased.

    Even when you find a stock that's in a serious downtrend there will still be numerous traders and investors who believe the stock is at a "discount" who start buying. That buying will obviously put your short in jeopardy.

    Its said that in the markets and in life, in general, its good to go against the crowd but that is just an all-around bad idea when it comes to trading and investing. I want to put my money in the direction that most of the money is going. Think about this example:

    John wants to vote for a presidential candidate that doesn't have a chance in hell of winning. The other candidate has a 95% chance of winning. After the election results are tallied John's candidate loses. Not surprising.

    More force was put behind the other guy and he won the election.

    This is a perfect analogy for stocks. John thinks AAPL could go down over the next few weeks so he shorts it. The overall trend for AAPL is UP and market sentiment is extremely bullish. Mutual funds and investment banks are loading up on AAPL shares. John loses big because STOCKS ARE SUPPOSED TO GO UP!!!



    Here are a few good articles on why shouldn't short stocks:

    Investopedia

    MD Magazine

    Marketwatch

    GoBankingRates

    US News




    DISCLAIMER:

    This article applies to STOCKS. I have no problem with the concept of shorting currencies, commodities, energy, or anything else. These instruments are not riding on the backs of companies. They are more the "numbers on a screen" type of instruments.
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    "Step into the arena and hold on to your hat. Don't get discouraged if you don't make 8 trillion dollars in your first month. Trading is not a get rich quick scheme. Realize that trading is a skill and just like any other skill it takes time to learn. Have convictions in your decisions in life and trading. Ignore the comments and "advice" of those that have never traded a day in their life."

    Good KARMA and positive energy abound.


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    Promoted content: You should assume that this website has an affiliate relationship and/or another material connection to the persons or businesses mentioned in or linked to from this website and may receive commissions from purchases you make on subsequent websites. Always exercise due diligence before purchasing any product or service. This website contains advertisements.
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  • #2
    I can agree with some of this. Its generally not a good idea to be a "heavy" bear. You get burned a lot. Wait for real downturns to be short.

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    • #3
      Oh I LOVE short selling. Either with the common shares or an options strategy. I sometimes get better and faster returns with shorting than longs

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      • #4
        I still haven't shorted my first stock yet. The last few weeks would have been great for some shorts though. Hindsight though.

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        • #5
          Originally posted by Abromovich View Post
          I still haven't shorted my first stock yet. The last few weeks would have been great for some shorts though. Hindsight though.
          Be careful with it. I don't usually advise newcomers to try short selling except for a few shares here and there to get your feet wet.
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          "Step into the arena and hold on to your hat. Don't get discouraged if you don't make 8 trillion dollars in your first month. Trading is not a get rich quick scheme. Realize that trading is a skill and just like any other skill it takes time to learn. Have convictions in your decisions in life and trading. Ignore the comments and "advice" of those that have never traded a day in their life."

          Good KARMA and positive energy abound.


          Terms Of Service

          Disclaimer: This website provides information about the stock market and other investments. This website does not provide investment advice and should not be used as a replacement for investment advice from a qualified professional. This website is for informational purposes only. The Author of this website is not a registered investment advisor and does not offer investment advice. You, the reader, bear responsibility for your own investment decisions and should seek the advice of a qualified securities professional before making any investment.

          Promoted content: You should assume that this website has an affiliate relationship and/or another material connection to the persons or businesses mentioned in or linked to from this website and may receive commissions from purchases you make on subsequent websites. Always exercise due diligence before purchasing any product or service. This website contains advertisements.
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          • #6
            My shorts always get chopped up. Kinda annoying. I've almost given up on it. Long only

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            • #7
              Shorting stocks can be a cruel mistress. I haven't known many traders who were consistently good at it. I put on an occasional short position with aboout 50/50 rsults over the years but i just cn't seem to make it work on any kind of regular basis. I guess you're right...stocks are supposed to go up.

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