Short Selling: Trading Of Converse Investors

Become a

On Friday, March 14, 2008, when Bell Sten made his last appearance before the collapse of Fox, I was in Washington recording a TV program for the Fawkes business news channel (Fox Business).

It's only 7 times that I suggest selling Bell Sten short.

At about 9:55 in the morning, the producer called me through the earphone and gave me 5 minutes to prepare.

I looked up at the TV screen and saw the stock pouring down.

I pulled out a blackberry, entered the customer's warnings and handed it to my editor. Finally, we closed the contract with a 287% profit.

About 7 minutes later, when the host asked me about Bell Sten's opinion, I was in high spirits before the real financial "schadenfreude".

Why?

Because I was right - Bell Sten was a loser, one of the many losers in Wall Street, and it just dropped.

Why does this make people feel so good?

Because share prices are down by bad news faster than their good news, unless some major biotechnology is approved by the US Food and Drug Administration or a company has made unbelievable profits.

Short positions are much faster.

As a matter of fact, I liquidated Bell Sten too early.

The next Monday, Bell Sten's stock price fell from $25 to $2 per share, and the put I put on sale should have risen to 800%.

Many of my clients stuck to it and earned 800% in less than two weeks.

Short selling history

Short selling is a common behavior nowadays. It has many variants, such as naked short selling (the word has been in the headlines for some time).

In mid 2008, after experiencing frequent fluctuations and the $100 billion stock being shorted, the bearish gap was much more common for many investors.

In the past many years, many ETF designed for short selling (or two times short selling and multiple short selling later) have gradually emerged.

The bearish amount reached a blowout in 2008, and the latest sign of increasing acceptance of short selling (and my favorite indicator) is a significant increase in the number of communication customers in my ChangeWave Shorts.

This is not just because there are profit opportunities in the volatile and declining markets, but also because people are beginning to realize that there are two sides to the paction.

It is not a mistake to choose to take a dip in the volatility of stocks.

If you have never sold stocks or never put a put option before you are ready to sell short, then you may not be an explorer or pioneer, but you are still an early settler in the new frontier.

What brings you to this far away place?

It's the need that you want to make money and want to make a quick profit through a great deal.

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Reverse investor's way of thinking

Most short selling investors and traders are the reverse investors in the stock market. They do not play the cards properly.

You may think that you are not such a person, but you have bought the book, so look at it in the mirror.

What does reverse investors mean?

Reverse investors refer to those who held reservations in the January 2008 when analysts clamored for real estate stocks to rebound. They drove around and saw abandoned houses and more and more signs on sale.

Reverse investors refer to those who say, "I don't care whether the stock price has dropped by 50%, which has reached a low historical value. I only know that those damn restaurants are still distributing coupons everywhere, and the parking lot is empty for most of the time".

The reverse investor also referred to my communications author, Moy, who did not listen to analysts, saying Citigroup would never cut dividends, but spent time cooperating with female analyst Meredith Whitney, a smart woman who worked in the Oppenheimer company, to spend time reading the securities and Exchange Commission's papers, and concluded that the Citibank guys were finished, and other analysts were wrong.

After Citibank's share price dropped by 35%, our position was lucrative, which showed the great value of Moe's early work. He walked far ahead of the mob of Wall Street.

If you do more than that, you should also remember that many great bulls are also contrarian investors, a guy named Buffett called "value investing", but in fact he is just looking for stocks that people hate, which basically shows that he is a counter investor.

The inevitable result of becoming a counter investor is to avoid crowds, crazy crowds, trend players and headlines traders.

Avoiding the crowd does not mean avoiding the opportunity, because others may see the same thing.

But suppose the stock market has a downward trend. I think you should avoid selling short just because of this trend.

I know that in the past few years, several good trading systems have been built around momentum indicators - you can use them if you like - but this is not the essence of short selling.

On the one hand, momentum trading can not predict whether to look more or less, because the relative value of momentum index varies with the market, and whether the momentum system can start depends on market conditions.

On the other hand, short sellers are short of bad businesses, bad businesses and declining market segments - they are measured in terms of fundamentals.

The trend will pass, but the fundamentals remain unchanged.

Looking back at the counter trend investors, they invest against the public and go against the experts who have made repeated mistakes in Wall Street, and are in front of them.

Oh, yes, those famous Wall Street experts.

If you continue reading, I will show you when, where and how to judge those experts' statements, so as to enhance their ability to counter the potential trading and establish a truly profitable way of thinking.

Remember: if you invest in the four h driving Wall Street, you will have a lot of money to earn.

These four h are: headlines (news headlines), Hysteria (hysteria), hype (publicize) and hope (hope).

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How much percentage should you draw from your portfolio for short selling?

Sorry, this question is not so simple.

Your short selling stock should come from your trading account and / or high risk capital, which means that the funds may account for zero to 100% of all your capital.

When distributing funds, bear in mind that what you sell short is not the market, but the bad or declining market segments that will fall. They will not change with the changing market conditions.

Start with several tasks: determine which part of the portfolio will be used for short selling, determine the proportion of funds used for short selling, and determine the amount of money held.

The first task is to determine where your funds come from short selling stocks -- which part of your portfolio.

One view is that since you are short selling based on fundamentals, then you should allocate all the funds in the portfolio to the stock market for the same logic analogy.

My point is: starting from the part of your portfolio being allocated to high-risk investments, starting from trading account funds or the funds you are currently using for options trading.

When you adapt to the short selling process, you can use the rest of the portfolio to increase investment, but you should bear in mind that the put option will be worthless once it expires.

The second task is to determine how much money is allocated from the portfolio - that is, your high risk fund - for short selling.

It all depends on timing.

However, since my first rule is defense, the second rule is to wait for a great trading opportunity. The best thing is that every position will not exceed 5% allocated to short selling funds.

In addition to the above suggestions, we should follow intuition.

Many successful investors and traders realized that bad news and downtrend stocks, bonds and markets were just as good as good news, so they built up short positions to balance their portfolios.

Buffett did not sell short shares, but he used a variety of investment tools to make a huge bet on the dollar, which essentially set up a short position in the US dollar.

If he can open up opportunities or balance assets by shorting himself, then you can.

When to sell short?

Your happiness, your profits, your early retirement, your orgy of revelry - they come from the unpredictable trend of the market, because most investors are wrong about the stock or market sector and you are right.

When should stocks be short?

Although each trader has short or multiple personal preferences, there are still several empirical rules that will help you start selling short and eventually push you to find potential opportunities.

It is short selling when it comes to bad news about specific enterprises or market segments, rather than short selling based on the overall trend of the market.

Ahead of the Wall Street crowd.

What's the bad news?

Starbucks laid off, the food and Drug Administration delayed approving Amgen's drugs, Apple Corp used iPhone to crush Palm, and so on.

Everything happens in the real world, when the market is rising.

Short selling occurs on the basis of two fundamentals of good and bad and no short-term short-term technical indicators.

No adverse indicators are different from seeking favorable indicators.

Such short selling is also different from that -- far from the way of trading through the search for favorable technical indicators.

Your best deal, the perfect deal, happens when a good opportunity comes up - the declining enterprise is accompanied by another great opportunity - the change or collapse of the market sector.

The complete collapse of Bell Sten is an almost perfect example of paction.

Finally, I want to point out that your paction does not happen when the market falls or rises, but when you find a great opportunity and Wall Street has not yet seen it.

Let me give you another example.

In September 2008, I predict that after the Lehman Brothers Company, the next one will be the Washington Mutual Bank and then the Wachovia bank.

Sure enough, I closed the warehouse one day before the collapse of the Wachovia bank, which doubled.

The reason why I chose to close at that time was because I didn't want to risk the potential external interference. In that case, government action might make the cooked duck fly away.

I didn't get the most out of it, but I didn't care.

If you want to succeed in put option, this is the discipline you need to stick to for a long time.

Remember, for patient investors, great deals are everywhere.