Shorting Stocks
Shorting Stocks
Secrets for Successfull intraday, swing and short term trading
Every profession / business has its trade secrets. The knowledge of such trade secrets or the rules of knowledge become the defining criteria for the success or failure of the traders in that segment.
Our stock markets are no different. They too have some unwritten laws which define the stalwarts and separates the wannabes from them.
I have seen the booms and the busts; I have seen the Mehtas and Parikhs. I have seen BARING, MERYLL LYNCH and I have also seen GOLDMAN, MORGAN STANLEY and the others in the jing bang gang.
Here are the five secrets of Successful Trading,
Secret No. 1: Avoid putting or placing physical stop losses on stocks. The sharks are watching.
It is very easy for the big daddy’s / sharks / market makers to see the “sell stops” of long-side traders and the “buy stops” of short-side traders.
Despite whatever has been assured by SEBI, stock manipulation is alive and kicking … and it is used every day to selfishly exploit what is supposedly a fair, orderly and regulated market.
If you are on the right side of a trade initiated by you, (be it long or short), use stops in the head instead of placing them on the dealers terminal. By doing this, you won’t give the market operators the opportunity to orchestrate a “sudden wrong side spike intraday move” that cleans out all the stop orders before the stock again resumes its previous journey (be it north or south).
Secret No. 2: Never use the market price key to buy or sell on the NSE. Put the price limit to trade.
There is a reason traders call the NSE “PETODIA” (PETODIA in Gujarati means Glutton).
There is a certain unwritten law laid down by the veteran traders that if you trade at the market price, the price at which you trade may shock you beyond reaction value.
I have seen a price with a bid price of 1075, if bought at market price instead of putting in a limit price, coming in for 1210 also in thinly traded ETF like say the GOLDBEES. So, trade with limit prices, not market. When trading through a dealer, tell him that your buy / sell price order is xxx. Or else, he will hit the market key to your dismay.
Secret No. 3: Respect a short position if it is quite large in volume / open interest on the short side.
Yes, we all know, there can be and are only two sides to every trade, yet only one of the two traders will emerge on the right side of the trade. It is inherent basic human psyche for most traders to be overly optimistic even if it means sacrificing rationale, logic and defying the trend. Therefore never carry a bias to the trading platform with you.
Shorting stocks requires that you to go against mass psychology. In an upward trending market, it takes real technical conviction to go short and still end up right. When shorting is done in volumes, be assured that someone has done some in-depth research and found one or more major negative components that call into question the underlying fundamental story of whatever stock is being traded.
Remember the golden rule; the short side of the market is smarter than the long side. Therefore, when you see a company with more than 10% of its stock having been shorted out, do your homework. Learn what the factors in favor of the short argument are before you decide to go long.
Secret No. 4: Sell when they Yell and Buy when they Cry
In an overbought market, whenever everybody waits for the dong at 9 AM to go off and execute their buy trades on the long side, take a moment, step off the gas and go short. Being contrarian pays rich dividends.
And when even the crows stop visiting the street, jump in and buy with all your might. The stocks will rise sooner than you would expect and give better returns that you would envisage.
Secret No. 5: Do not listen to the prophets of Boom and Doom on the Business Channels.
Well, the biggest mistake that one can make is to listen to the analysts appearing on the electronic media and goading you to either buy into or get out of a stock.
How many times have you noticed that immediately after an expert opinion is televised on a particular stock, the share market suddenly jerks back down the wrong side and gifts huge losses. These paid puppets on the talk shows know nothing or little less than nothing to be talking about stocks. I have heard stories about people having lost in millions by heeding to their paid advice. Well, if after having paid someone for services, does making a loss sound right?
So, stay away at arm’s length and don’t touch them with a barge pole.
How to Short Stocks
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