DaytradeTeam Profitzzz
Recaps of DaytradeTeam Trading Systems Performance
Tuesday, August 16, 2005
Short Selling Myth: More chance of Losing
Another aspect of short selling most novices do not understand is the risk of losing money versus buying. For some reason, many active traders believe that you are more likely to lose money short selling than buying. That is simply not true.
Our DaytradeTeam traders hear something similar to this very frequently: "But if I short sell, and the stock goes up, I'll lose money!? Yes, that is true. But if you buy and the stock goes down, you'll also lose money. It is our opinion that often active traders do not like the idea of short selling because it requires them to be correct.
What we mean by this? Many active traders like to find "good" companies, buy them and hope the price goes up. They never look for "bad" companies or wonder if their "good" companies are overbought. By introducing the idea of short selling to traders, they are forced to decide not only which company to look at, but which direction to pick.
The fact is, short selling is no more risky than buying long for active traders. Short selling gives day traders and swing traders the opportunity to make money in heavily bearish markets or on stocks that are obviously headed south.
It can be frustrating at first for traders to lose money when short selling and buying, because on every losing trade, long or short, they could have made money had they done the opposite. This new responsibility is challenging, but also a great tool when combined with correct technical and fundamental analysis. About half of all of our trades are short in our Day Trading System, an example of the value of being able to make profits during a declining market.
Anyone can make money in a bull market. The challenge is to make money in bear and sideways markets. With the correct day trading system or swing trading system, that challenge quickly becomes a great opportunity to make a lot of money.
Our DaytradeTeam traders hear something similar to this very frequently: "But if I short sell, and the stock goes up, I'll lose money!? Yes, that is true. But if you buy and the stock goes down, you'll also lose money. It is our opinion that often active traders do not like the idea of short selling because it requires them to be correct.
What we mean by this? Many active traders like to find "good" companies, buy them and hope the price goes up. They never look for "bad" companies or wonder if their "good" companies are overbought. By introducing the idea of short selling to traders, they are forced to decide not only which company to look at, but which direction to pick.
The fact is, short selling is no more risky than buying long for active traders. Short selling gives day traders and swing traders the opportunity to make money in heavily bearish markets or on stocks that are obviously headed south.
It can be frustrating at first for traders to lose money when short selling and buying, because on every losing trade, long or short, they could have made money had they done the opposite. This new responsibility is challenging, but also a great tool when combined with correct technical and fundamental analysis. About half of all of our trades are short in our Day Trading System, an example of the value of being able to make profits during a declining market.
Anyone can make money in a bull market. The challenge is to make money in bear and sideways markets. With the correct day trading system or swing trading system, that challenge quickly becomes a great opportunity to make a lot of money.
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