Short selling, which is also known as shorting stocks, is very different from owning stocks. Aside from the fact that it carries more risks, it is more complex and requires a higher degree of responsibility on your part as trader. Before jumping into this investing strategy, it is important to understand it first—why it is done by other traders, how it works, etc. and if you are a starter, this is not enough. You still need to pick up tips from the experts. Here is how you will be successful at short selling:
Understand the risk involved.
Before anything else, you might hear experienced traders telling you not to engage in short selling at all because of the extreme risks it carries. This is also the reason why it would be difficult to find a broker who will be willing to help you with such a move. However, with proper research and analysis, you will most likely attain success from this trading method.
Do the necessary preparations.
So, you still want to pursue shorting stocks with all the warnings you received. Well, make sure you are fully prepared. Put in mind that short selling is only for experienced and well-informed traders, so make sure you have learned everything before you start. Do some research on prospective companies and be cautious in forecasting, as a wrong forecast can cost you severely.
Make long trades in the stock market for practice.
The opposite of short selling, long trades allow you to assess each trade and speculate what could have happened if you shortened your stock.
Get yourself a good online broker.
Having a good broker by your side is very important, as he will allow you to short sell, while actually having shares available for you to short.
Look for poorly performing companies.
Typically, the worse the company is performing, the better your chances in short selling. In this strategy, always put in mind that everything works in reverse.
Most importantly, never rely on any other individual to influence your short selling decisions. You can do your own due diligence by doing your own research and analysis. You will want to find and know about long-term trends across every sector, such as commodities and technology, that has been experiencing consistent drops.