Shorting Stocks

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Hello you very pleasant and amazing people that make up this forum. I do hope you are having a nice day and keeping positive.

I have been researching into shorting stocks i heard many people shorted Apple from January 2022 and did well out of this. I kindly wondered please what you look for to short a stock, is this weak financials, or something in a previous earnings report that might pipe interest? Further is there anything in the charts, certain levels of volumes, the chart moving below certain moving averages that might help indicate a share is good to short please? I would be very thankful for any advice anyone can give please, it would mean the world to me.

Thank you very much for any support you can give, i would be eternally thankful and grateful. Hope you have a pleasant rest of the day. Take care.

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Why would i go into something my upside is limited but my downside is unlimited is the question i would ask myself…

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Hey Robert,

My general opinion is to stay clear of shorting. It really depends on your goals and risk attitude, but to me it is a risky game trying to predict when stocks will go down, as you’re fighting against the general trend of them going up. And as @Zrtz said, the upside is limited but the downside is unlimited. If you’re not sure about it I would think twice before doing it.

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To be fair, that’s a bit of a stupid argument.

If taken over an aggregated period of time, shorting will always be on the losing end of the deal; but we don’t deal in aggregate, we deal in every day exceptions.

When a company has their next 50 years of earning growth already priced in, shorting finds itself with no downside and a lot of upside.

The risk with shorting lies elsewhere, and such practice is only intended for investors with a deeper understanding of the markets.

For one, you have higher counterparty risks.
For two, you have margin requirements, and maintenance fees.
Then thirdly, and the most deterrent factor i believe:

while it is never a major issue to fully own shares (long position) in a losing trade. One can always keep holding, until they did if they chose so.

But on shorting, and manly due to the 2 first issues, that is certainly not the case. When having a losing position, holding it can get much more expensive, and you always face a risk of liquidation when dealing with the irrationality of the markets. Regarding counterparty risks, you may also be forced out of your position for reasons out of your control (such as forced shares callback, or low share ownership from your broker).

In other words; while it is generally advised to not try and time the market when going long, going short makes it a necessity, due to heightened risks associated with the trade.
It doesn’t mean it is unadvisable, but it definitely requires a deeper analysis of both the mechanics of the markets and brokerages, as well as the specificity of the underlying company and its price action.

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The first one is

  • You will need to fully research that the stock is much more likely to go down rather than to go up in a relativity short time period to consider shorting the stock.
  • Shorting is intended for trading, not investing. It is normally for a short term, not for a long term due to cost associated with it.
  • You will need to include all fees, daily weekend fees for shorting.
  • Avoid high leverage to minimise the damage when you get it wrong.
  • Not to mention liquidity of the stocks in question in the market so the spread is minimum.
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Thank you very much for taking the time to leave your insights, you have all been more than wonderful. I appreciate your feedback on this very much.

Adindas thank you for leaving your comments regarding this i am very thankful. Could a stop loss be used, for instance at a price above purchasing for instance if you buy a stock at 50 USD, set this at 55 USD, as a safety net if you get the trade wrong please? Further is there anything in the financial reports, or any indicators in the charts that might indicate that a stock is going into a bearish trend please, if you could kindly share any further insights i would be forever grateful?

However i understand this is a very short term trade, as there is alot of costs in this, including daily weekend fees. So i would have to time this appropriately to try and limit any fees.

Thanks so much for all your support on this. Sending you lots of good wishes and hope you have a very happy and pleasant day.

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You can’t set a stop loss ABOVE the current price, as logically that would essentially be an instruction to sell.

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Well, if shorting, yes you can :joy:
A stop-loss is a stop-sell or a stop-buy order, depending if you are long or short.

When shorting, of course you would set up your stop-loss above the current price!

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I presumed he was planning to use an ETP like granite shares short, then the stop loss goes below the current price, not above.

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Thank you very much for your further replies and thank you Zergui for mentioning that it is possible to set a stop-sell or a stop-buy order, depending if you are long or short. I appreciate your input.

To support fundamental research, say if a company has declining profits and i wanted to support this with technical data from the charts of a stock. Is there kindly anything that is the most important about the technical data, such as lower volumes, more people selling shares, or the stock moving below its 200 day moving average, that could help support the stock is entering a downtrend please? If anyone had a few thoughts on this i would be very thankful.

Thank you very much for all your support its been very helpful indeed as i continue to learn more about various forms of investing. Sending you lots of good wishes.

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@robertbanking
Both serves different purposes.
Fundamental analysis is mainly to identity the stock, the business they are doing, analysing balance sheet, Income statement, their revenue, debt, their valuation. So this is to ensure you buy a stock that doing a great business, likely to grow and be profitable and will not go bankrupt. It will also help to identify the Price Target you consider as a good buy.

After Fundamental Analysis, you do technical analysis to get the best price you could possibly get as your entry point. Keep in mind the price will be dictated by the volume. Even it is a very good stock that you have identified using fundamental analysis; If there are a lot of people are panic selling it, the price will keep dropping. You identify this trend using technical analysis. Technical analysis is mainly analysing the price/volume action. There are a lot of indicators have been developed and could be used for this.

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Thank you very much for responding adindas and making this very clear the clear uses for Fundamental analysis and Technical analysis i am very grateful for your response very much.

Can i kindly ask lastly please what are some of these indicators you mentioned regarding the Technical analysis and what could be utilised for indicating a stock could be heading for a downtrend please? Do you kindly have any final thoughts on this, i would be forever grateful and thankful?

I appreciate your input very much, you are a wonderful person and have been very helpful. Hoping you have a pleasant day.

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Hello you amazing people hope you are doing well today. Very sorry to follow-up on this. If anyone kindly had any thoughts please on the best indicators to use in Technical analysis that could indicate a stock would be heading for a downtrend i would be forever grateful please? Even if its only a few sentences. Thank you so ever much for your time. Take care.

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This is a very difficult question to answer in a forum as they are a lot of them and each serves different purposes and for different situation. The most commonly used for by daytrader is VWAP and recognising candle stick patterns. and Volume Bar.
For swing trading but also used in Daytrading the well known is RSI, MACD, Bollinger Band, Stochastic, EMAs, SMAs, William% Range. There are also paid indicators such as used by FastTraders on CNBC such as S&P short range Oscillator.
Technical Analysis is not just about using indicators. I am not a high frequency trader, but high frequency traders are learning it for years and they are still learning it.

Also there are various trading type such as Scalping, Trading within the Channel, Breakout Trading, Short Squeeze trading, each of them need different approaches.

There are a lot of educational videos from authoritative sources on YT for this purpose such as
From Trading212

From Pepper stone

The is one from IG you will need to search it.

Just be aware majority of people are losing money trading let alone if it is shorting the stocks. So do paper trading before you start using real money.