Collective Intelligence

[Bruce the Stock Guy]

Are you new to Shorting?:

I thought I'll post a little clarification post for Newbie-shorters or those who are interested getting into shorting.

First of all, this board wasn't really intended to be for Noob-traders/ -shorters. Nothing wrong with being a Noob (we've all been there) but this board is intended for people who are already familiar with Shorting.



Nevertheless a few points for all the Noob-Shorters out there :)

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- Shorting Stocks, FAQ at fool.com: http://www.fool.com/FoolFAQ/FoolFAQ0033.htm

- Before you short stocks and if you have never done it before, please do some research first and use Google, there are many free topics on the web. There are books on Short-selling stocks but I don't think it's necessary and there's more than enough free content on the web to learn from.

- There's no rocket-science behind Shorting and it's not really difficult. It's basically inverse trading.

- Making $ is often easier with Shorting, because just like an airplane will come down at some point a stock too will fall. Especially when it had a big white break out candle, is way overbought and is in the process of a retrace. When you long a stock there's never a guarantee that it will go up but stocks that ran much will most definitely retrace.

- You can start by Paper-Shorting first before using real money.

- You need a margin account and I recommend an account balance of over $ 5-10k, however if you have smaller funds to play with it can work too. Just like with longing stocks it can sometimes be more difficult to achieve good results with smaller cash funds.

- I recommend only using funds from your real cash balance so you're not being charged a margin interest rate if you short stocks above your available cash. Only use margin if you're really really sure that the particular stock you're shorting will go down and fall down enough to give you nice returns as well as cover the margin interest rate (I currently use TDA, they usually charge interest rates around 5-9%) / Example: Means if you start with a balance of $10k, don't use more than $5k to short a stock. Start small first and use bigger amounts when you get more confident.

- Don't jump into shorting just any stock blindly. Learn some chart T/A fundamentals first and do some DD on the company. Recommended for shorting are stocks with overbought/ toppish RSI/ MACD levels, big open gaps below (they usually always get closed) and such with bad news or fraud accusations.

- You will not be able to short any stocks. Sometimes there will be no Borrows available even of very popular big board stocks. So first check if you can short a stock by putting in a dummy "sell to short" order of 1 share at way above the particular pps in question.

- A lot of Newbie-traders think you can short sub .01-.10 Penny Stocks. It's usually nearly impossible to do so. There are only a few brokers that allow shorting Penny Stocks and the best one out there is InteractiveBrokers: http://www.interactivebrokers.com
But even they usually only have enough Borrows of OTC stocks above .10-.50, such as popular Newsletter-pumps.

- Check out these websites that focus on uncovering fraud & scam on the big boards and OTC world - The stocks they cover are some of the best shorting targets out there: http://www.muddywatersresearch.com, http://thestreetsweeper.org, http://citronresearch.com

- Is shorting a stock evil? No why? We live in a capitalist world where most if not all corporations are greedy and contribute to the destruction of this Planet actively or passively. But that is not really the point. The point is, stocks go up and down and why shouldn't you make money on the way down? If a company is only worth as much as their stock price then something is wrong with their business.

Enjoy Shorting and don't get squeezed :)