Article When to Short a Stock

T2W Bot

Staff member
1,459 60
Most investors by nature will “go long” when they buy stocks. Few investors naturally will short stocks (or bet on their decline) because they really don’t know what to look for. Some investors see the shorting process as somewhat counter-intuitive to the traditional investing process, since many stocks do appreciate over time. That said, there is a lot of money to be made by shorting and, in this article, we’ll give you a list of signs that show when a stock might be ripe for a fall.
Technical Trends Look at a chart of the stock you are thinking about shorting. What is the general trend? Is the stock under accumulation or distribution?
It is not uncommon to see a stock that has been in a downtrend continue to trade in that same pattern for an extended time period. Many traders will use various technical indicators to confirm the move lower, but drawing a simple trendline may be all that is needed to give a trader a better idea of where the investment is headed.
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Dr. Toad

Active member
169 33
Glenn missed one of the most important (but easily overlooked) aspects of what to look for when shorting a stock. This is --> how easy it is to short the stock. I can't even count the number of times I have tried to short a stock only to have my order rejected since my broker has no shares to short (and I am with a fairly major broker).

If it is an obvious candidate to short that is not an easily borrowed stock, you will be SOL. This has happened to me so many times I don't even bother looking for or trying to develop strategies around shorting stocks. My broker has a list of easily borrowed stocks, and I suspect most do. If developing a strategy around this, you will need to reduce your list of candidates to what they have which tends to be major corporations that are less likely to have the sharp extended downtrends that smaller corporations can experience.

Not saying there are no opportunities there, just that the pool you are playing with is comparatively small. Especially if it is an obvious candidate to short, it will be hard to execute the trade when your signal is triggered which is extremely frustrating. When shorting, you are truly at the mercy of your broker which is a bad positions to begin a trade at.
 

sminicooper

Experienced member
1,148 327
Glenn missed one of the most important (but easily overlooked) aspects of what to look for when shorting a stock. This is --> how easy it is to short the stock. I can't even count the number of times I have tried to short a stock only to have my order rejected since my broker has no shares to short (and I am with a fairly major broker).

If it is an obvious candidate to short that is not an easily borrowed stock, you will be SOL. This has happened to me so many times I don't even bother looking for or trying to develop strategies around shorting stocks. My broker has a list of easily borrowed stocks, and I suspect most do. If developing a strategy around this, you will need to reduce your list of candidates to what they have which tends to be major corporations that are less likely to have the sharp extended downtrends that smaller corporations can experience.

Not saying there are no opportunities there, just that the pool you are playing with is comparatively small. Especially if it is an obvious candidate to short, it will be hard to execute the trade when your signal is triggered which is extremely frustrating. When shorting, you are truly at the mercy of your broker which is a bad positions to begin a trade at.
Good points. I like shorting stocks because when they go, they go. It's not normally a problem with IG (ok – they do make their own market). But even with them on occasion, if there is a particularly obvious opportunity (to me, at least!) they sometimes don't provide the facility. Occasionally they will also not offer controlled risk (guaranteed stop) which forms an important part of my risk strategy. But neither of these happenings is a problem – just move on to other fish in the pond. It's no more annoyance than routinely checking earnings/dividends/XD dates.
 

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