Shorting Tips For You

I need to keep it short today, so you’ll have to excuse the brief column. Keeping it short seems appropriate, though. The last two days we’ve seen the market rally on weak volume. The S&P 500 and Dow are making their first pullback after breaking down from their recent trading ranges. The first pullback many times tends to be the most reliable and potentially the most rewarding. I would be looking for signals that the pullback has exhausted itself and the trend down is resuming. Index shares are one way to play it. You may also look for individual stocks that are setting up. Most traders are not as comfortable selling short as they are trading from the long side. If you’re inexperienced at shorting, then I would take it slow and trade a little lighter until you have some profits to provide a cushion. If you’re not used to scanning for short candidates, one place you could start is the Downtrending stocks lists on the Stocks Indicators page. I would especially take notice of the Proprietary Implosion list and the Pullbacks From Lows list.

Remember, even the best short sale does not have the intermediate-term potential of a long trade. You can’t make over 100% on a short. Therefore, you may want to consider taking a piece off the table and locking in some profits a little quicker than you might on a long position.

And you should never take a short trade (or any trade) without first determining the amount of capital you are willing to risk and setting your stops to protect yourself. As a trader, the only thing worse than losing all your money is losing all your money and still owing your broker some more.

Sorry for the “short” column.

Best of luck with your trading.

Rob Hanna