Short selling of securities requires the performer to be skilled at taking advantage of the times when the market falls. A Short Selling strategy can be profitable through bullish and bearish trends as long as you strictly follow the rules of risk management and time management.

Mastering short selling requires a simple entry strategy, perfect timing, and good risk management. Short sellers also need to implement rules to increase the effectiveness of these strategies, reducing the risk of short-term Short Squeeze. Short sellers often suffer shock losses that are naturally part of the trade, but the trick to mitigate it is to find positive ways to surf lower bearish stocks.


Three strategies to short sell

You can short at any time if the market is very liquid and there are no special restrictions. The current implementation of the Uptick Rules (a rule established by the Securities and Exchange Commission (SEC) requires that the short sell order be executed at a price higher than the price of the previous trading session) will Not in effect until the security is down 10%, so this is seldom a factor in a short-selling decision. In theory, the broker must have the expected stock security when another client holds a short position, but in practice, short selling without a corresponding reserve share is currently popular due to business practices competition.

Short selling profits are subject to one of three factors:
  • Sell at a pullback in a downtrend.
  • Enter your order at the trading range and wait for a breakdown.
  • Selling in a Discount, Discount, or Decline.
Of course, many traders choose to short-sell at new highs, thinking that the security has risen too far, but this is a disaster as the uptrend can last longer than expected by technical analysis or analysis. basic product. In fact, a large number of short-sellers are forced to short sell during strong uptrends that pressurize prices even higher. The price only needs to increase a few points and these traders start to offset the loss, the effect that continuously causes the price to rise many points in a relatively short time.


Ford Motor (F) shows 3 profitable short selling strategies in a single downtrend. The automaker created the final stretch of a bearish double top pattern in September and broke down, causing bearish signals that momentum traders can use to short sell. The drop quickly ended, giving way to an unsuccessful rally at the broken support zone, allowing pullback traders to enter. Prices have returned to the 8-day weekly low of consolidation, encouraging short-term investors to buy. The stock price then breaks, creating a continuous sequence of entry signals for each strategy.

Although the example is perfect, the entry to a short sell carries a significant risk so sellers must time accurately. It's easy to follow a downtrend, get a profit after a breakout, and catch a regular pullback. Entering at corrections is quite effective, but modern algorithms often push the price above the breakout level so you have to sell short and attract weak buyers, before continuing its downtrend. . As shown on the Ford chart, the September bounce could have filled the gap above 17 without affecting the technical indicators, rather than reversing immediately at the month's low. 8.

Short selling: Do's and Don'ts

Short selling can be improved with the following rules to minimize risk and focus attention on the most promising opportunities. Note that chasing lower levels in the momentum strategy should be avoided until the short-sellers skill has developed. This is an important limitation as these positions are usually filled at the worst price, due to algorithmic behavior.
  • Short-term bulls, not sell-offs - Your first job as a short seller is to always avoid the crowd, while also using their emotional energy to locate the best price available. can. Bearish rebounds provide ideal entry points for short selling because you already know the price at which other sellers are likely to re-enter their positions. Risks if the crowd is large and they expect a new uptrend.
  • Short selling of industry groups where markets are the weakest, not the strongest - Let other traders dizzy while staring at explosive uptrends thinking that prices are already too high and have to go down. A better plan is to identify weak sectors that have entered downtrends and take advantage of corrections to short sell. Surprisingly, this method often has a lower Short Interest compared to a hot stock that trades a lot, making it less likely to be oversold.
  • View the economic calendar and avoid bullish seasons - Short selling on holidays or during the options end week can suffer a heavy loss because those markets do not conform to natural supply or demand. Also avoid short selling under conditions of low volume, the experience of which is "never short sell a dull market."
  • Short selling in Confused and conflicting markets - Short sale when key market indicators are in conflict. These contrasts create bearish divergences and provide sell signals. Additionally, sellers can use tight stops to control losses if the price corrects higher.
  • Avoid embroidery stocks - Traders like to sell stocks with colorful and vague stories that fill the financial press and the media, they think they have discovered ways to make money instantly, but these stories attract a large crowd. In return, securities suffer from a high rate of short selling, significantly increasing the rate of under-selling even during strong downtrends.
  • Failed breakdowns - Price is able to continually test new bearish trends. Know the price you can take when the price gets back to the breakout level and set a stop loss whenever possible. There is little chance of any loss when the short position is already profitable, so the stop should not be higher than your breakeven price.
Conclude

Shorts perform well in bull and bear markets but require strict rules of entry and risk management to overcome the persistent threat of short sales. In addition, short sellers have to check reality constantly to confirm that they are not part of the crowd that is being targeted for losses.

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