Sure shorting stocks can be tricky and a bit dangerous if you dont know what you're doing but the reward of doing it far outweighs the risk. Every day an absolute insane amount of money is made by traders shorting stocks...day traders and swing traders.
Tired of losing long? It might be time to short - Stephen Johnson
- Thread starter Jonk87
- Start date
Sure shorting stocks can be tricky and a bit dangerous if you dont know what you're doing but the reward of doing it far outweighs the risk. Every day an absolute insane amount of money is made by traders shorting stocks...day traders and swing traders.
Never said not to short. What I said was do not borrow stock to short. Your risk to the upside is unlimited. That is what blows out accounts. Use Put options to short stocks. Stop losses are useless once, that same stock gaps up. You have already suffered large losses.
There is a smart way to short stocks which is by using put options and the dumb way, a lot of retail traders do it which is borrow stock to short. You just need one big whack of that same stock gapping up and wiping you out. Good luck with that!
I'm sure just as many traders have been "wiped out" by being long a stock and having it gap down,,,and stay down for a REALLY long time. Options trades are complex and not for everyone, and ALSO a good way to lose a ton of money if you dont know what you're doing.
Therein lies your risk management. The only thing you can control is the amount you can lose. You do not know ahead of time, how much you can make on any trade, even if it moves in your favor. However, apples to oranges comparison. When you are long stock, your risk is what you put into that trade. Say you buy XYZ stock for $50 and buy 100 shares. Your total risk on a worst case scenario, is $5,000. You cannot lose more than that. So, you think it is wise to short ABC stock, so you borrow 100 shares and short it at $50. You get $5,000 deposited into your account. Bravo. Then, ABC stock gaps up to $150 x 100 = $15,000. Assuming you got out at $150, you lost $10,000. So, you lost way more shorting stock by borrowing shares. The risk profile of shorting stocks by borrowing shares, is unlimited to the upside. Too many retail traders do not understand the huge risk they are taking each time they borrow shares to short. Even hedge funds made that mistake on AMC and GME. They lost billions in the process. Other hedge funds fleeced them too, seeing their huge mistake.
If someone is getting wiped out by being long and considers shorting by borrowing, then, he has no clue of what he is doing.
Shorting by borrowing shares is prevalent with day traders. Most of the stocks they short, are low float stocks (very few shares) and go up hundreds of percent at times. You can argue till the cows go home but, the risk profile of borrowing shares to short is still unlimited to the upside. If hedge funds can make that same mistake with AMC and GME and lose billions, it can happen to you or anyone else foolish enough to keep rolling the dice. It just takes one whack to wipe you out and bankrupt you and then, you will be wondering what the hell happened? And stop losses are useless when a stock gaps up. You think if you have a stock which you shorted at $50 with a stop loss at $50 and gaps up to $100 that you will be able to get out at $50 with a very small loss? A stop loss becomes a market order and gets executed, at that market price. You do not get to decide what price to exit at, the stockmarket will decide on what price your stop loss ends up being executed at. A stop loss will not protect you as it becomes a market order once, it executes.
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Aside from the crap ad here the one thing I will say is that most people have a preference of one or the other in terms of how often they see opportunities so it might be worth isolating longs and shorts in your testing to see which you have more luck with. Then either work on the weaker one or stick to what works.