Author Topic: share shorting explanation  (Read 6538 times)

Nios

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share shorting explanation
« on: January 23, 2014, 07:08:33 pm »
As most profess that this site is to learn, would some one mind explaining how it works? What are the signals one looks for in order to short a stock? Generally how long does a short last, is their a specific window of opportunity etc.?

Orca

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Re: share shorting explanation
« Reply #1 on: January 23, 2014, 08:31:09 pm »
Shorting individual stocks is difficult and most "experts" do not short unless they are sure of the outcome. Garth Mackenzie comes to mind.
He only does Shorts on 10% of his trades. We are still in a bull market so Shorts are a gamble.
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Aragorn

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Re: share shorting explanation
« Reply #2 on: January 24, 2014, 08:11:32 am »
There are a number of indicators that can be used as an "indication" that a share could be ripe for a short. However they cannot be used in isolation. Most traders have their own "system", i.e. a "list" of indicators or patterns that must all fall into place before considering a short. These could include RSI and/or MACD reflecting an overbought situation, share price movement, volume traded, industry sector sentiment (e.g the last few months had been great to short most Retail stocks), Double top and Head and Shoulder patterns, Doji candles etc, etc. - the list goes on. and just to complicate matters, not all shares follow the identical "criteria", hence a trader should have different systems for each shall we say "group" of shares (e.g. NASPERS behaves very differently to Anglo under identical indicators). And even once all indicators are in line, it still does not mean that the share price will drop. That's when the trader's pre determined risk management and strategy come into play. Is the trade worth the risk?

In my experience, shorts generally run for a shorter period compared to longs - but it's not a rule - the story of "Bulls take the stairs while Bears jump out the window" comes to mind.
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Bevan

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Re: share shorting explanation
« Reply #3 on: January 24, 2014, 10:02:01 am »
Indeed, the bull walks up the stairs (80% of the time) and the bear jumps out the window (20% of the time). So odds are in your favour trading long.

You can short with CFD's or futures but it's harder to short with actual shares. It involves borrowing cash from your stockbroker which you must then pay back at a later date, either pocketing a profit or paying in extra if you lose money. You will be called for extra margin if the position goes against you.
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