How to short stocks
Shorting stock is essential for swing traders. If you want to be able to trade on both side of the market and profit when the market is up and down, then you will need to learn how to short stocks.
What is short selling?
Let's say if a stock is currently trading at $45, and you think the stock is overvalue. You want to short the stock so that you profit if the stock does go down. If you short 100 shares at $45, and the stock went down to $35, then you made $10 for each share or $1,000 in total profit. When you short a stock, you borrow the shares from your broker and wait for the stock to drop. When your profit target is hit or when you are ready to cash in, you cover your shorts. Cover your short means you buy the shares at current price and then returned the shares you borrowed and the price difference will be your profit.
What's the requirement for short selling?
1. You will need a margin account in order to short stocks.
2. There may not be shares for you to short if you are shorting a stocks that's illiquid.
3. If a stock pays dividend while you short, you will have to pay it.
4. You will need to set stop loss for your stocks when short. Remember, there is no upside on how high a stock can go. When you buy a stock at $5, and if the company go bankrupt, all you can lose is the money that you invested in. However, if you short a stock at $5, and the stock went up to $20. You are on a 400% loss. If you invest $1,000, you now lose your $1,000 initial investment and you owe your broker $3,000.
How To Short Stocks
Shorting stocks is the exact opposite of buying stocks, so you look for bearish stock patterns. HPQ was a good stock to short because the weekly and daily stock chart were on a down trend. Each time, the stock bounce back to the trend line, it gives you a good opportunity to short. The stochastic indicator offer two optimal point to short the stock. The stochastic cross down from the overbought area in late April and another stochastic cross down in mid August, these are the perfect time to short the stock.
Technical Screener for Short Stock Ideas
You can use our short stock screener to find stocks to short. You can short stocks base on any technical indicator you like, and be able to find these stocks with our free stock screener.
Here are some of the technical indicators that our screener will scan.
1. SMA Crossdown
2. SMA and price crossdown
3. Exponential Moving Average crossdown
4. EMA and Price crossdown
5. MACD cross down
6. Stochastic Crossdown
7. Many more.
Visit the Bearish Screener to try our stock screener now.
If you want to learn more about stock trading, check out this technical analysis ebook.