Some Tips On Shorting
5 dos and don’ts in short selling.
1. Do use stops. Period.
2. Do monitor “hot” industries and sectors. Identify fake players, poor competitors, minor companies with too-ambitious goals, fundamentally weak stocks, technical laggards and “pumped” prices. They will eventually give short sellers the opportunity to make a profit.
3. Don’t short stocks with high short ratios or high proportion of short shares vs.float. Chances are you will get “squeezed”.
4. Don’t short growth companies and those with good ideas, aggressive research/marketing and solid balance sheets. Remember that good companies will prevail in the long term and good news might be around the corner.
5. Don’t short companies that pay dividends. Consistent dividends create steady prices (a boring situation for traders, unless you play options), counter panic, attract buy-and-hold investors rather than traders, and create resistance to moderately bad news, sector weakness and cyclical variations.
Note: If you’re not familiar with short-selling, you may want to take this opportunity to familiarize yourself with it. If the past has shown us anything, it’s that stocks go down a whole lot faster than they go up. Thus the profits for short-sellers can come surprisingly quick. Many people even in this “enlightened” era, do not realize that you can make a lot of money if the market is falling. Well the fact is that you can, and there are 2 good ways to do it. One is to “sell short” and the other is to buy options called “puts”.
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