Investology

Short Selling Advice

Short selling in the stock market is not for the faint of heart. It is not also for the inexperienced trader. If done wrong, the practice can lead to considerable losses and becomes more of a gamble rather than a calculated risk. There are some skills that a short sale trader needs to know. Here are some things that they should bear in mind.

Looking For Weak Stocks

Identifying weak stocks is important in short selling. After all, it is the basis on why this trading practice still works. It may go against conventional wisdom in trying to invest in weak stocks rather than the strong ones. As long as the experienced short sale trader has a firm understanding of the objective, then it does not have to be scary.

One of the main characteristics of weak stocks ripe for short selling is that a particular stock must be always experiencing selling pressure from its current investors. Short sellers also try to analyze the reasons behind why the stock is being considered weak with its stock price falling. It is important to determine if the trend is short-lived or whether it may take a bit longer. This knowledge will enable the short sale trader make the right moves at the right time.

Bad News Is Good News In Short Selling

In the case of short selling, bad news concerning companies is something to further monitor. A company having stock price troubles may be considered as a potential stock to short sell. Price volatility alone may not be enough. There are other factors to consider if course. But in general, many stock traders consider upcoming bad or negative news about a certain company as an attractive potential stock candidate for short selling.

Huge Stock Price Rallies Are Good

Stocks experiencing huge price rallies may also have potential for short selling. But again, factors behind the rallies should be closely monitored before making the move. It is the huge rallies in stock prices, especially if they happen without any credible reason behind them that provides experienced traders with a good reason to consider short selling a particular stock. This increases the probability of the stock price crashing down later on, making such stocks ripe for short selling.

 

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