Newbie Question

Hi I'm a newbie.

I'm going to ask a silly question.

When you short a stock, lets say $50 and your technical analysis and indicators says it is going down. How do you protect yourself if the market goes against you?

Is it called a Buy To Cover?

When you buy a stock, you can set up a Stop Loss. I'm trying to find something simmular to that. I want to find an upside stop loss however I dont know what it's called

It's still a stop. When you're long you use a sell stop - a stop set below the market. When you're short you use a buy stop - a stop set above the market.

ken979 said:

Hi I'm a newbie.

I'm going to ask a silly question.

When you short a stock, lets say $50 and your technical analysis and indicators says it is going down. How do you protect yourself if the market goes against you?

Is it called a Buy To Cover?

When you buy a stock, you can set up a Stop Loss. I'm trying to find something simmular to that. I want to find an upside stop loss however I dont know what it's called

Click to expand...

You can hedge the position. If there are a stock with opposite trend direction you can buy this stocks. Now your balance protected: on one in any case you make money, on another you lose money any case. So you good. When situation is normal go back to your strategy!

galeonbaster said:

You can hedge the position. If there are a stock with opposite trend direction you can buy this stocks. Now your balance protected: on one in any case you make money, on another you lose money any case. So you good. When situation is normal go back to your strategy!

Click to expand...

In this case, though, you're changing your risk from directional to relative performance between the two stocks. In fact, you're exposure becomes potentially unlimited.

All 'cover' means is to take a profit or loss whichever way around your positions is.

So if short 100 shares at 50 you can say -

I'll cover at 40 (meaning buy)

If long 100 at 50 you can say -

I'll cover my shares at 60 (meaning sell)

You can also cover your shares at a loss, for example you're short 100 @ 50 and somebody asks you about the trade you can say 'I didn't like the trade when it started to move higher so I covered them at 52'.

Having said all of that the word 'cover' is usually associated with a short trade and not longs but it won't confuse anyone if you do use it with a long trade as in I bought 100 at 50 and then covered the trade at 55.