1) Wait for a pullback before entering a position: When a trader is looking for a good entry point, they will typically want to enter on some type of pullback before entering a long position. When shorting stocks, the reverse is true. Instead of waiting for a pullback to the downside, you must get your mind, and eyes, to recognize that a rise in prices on a potential short stock candidate is a pullback.
In a traders perspective, a pullback should be considered a reversal of prices in the preceding trend. If the trend is up, a pullback to the downside may provide a good entry point to go long a stock. If the trend is down, a pullback (rise in prices) to the upside may provide a good entry point to short a stock.
By waiting for a pullback (rise in prices) on a down trending stock before going short, you’ll be able to use a tighter stop loss and lower your risk of getting stopped out on a fake out move.
If you are a swing trader, you’ll already be accustomed to waiting for a pullback for a long entry point, just picture the process in reverse. In fact, it’s often helpful to picture the chart in your mind to visualize the good entry point for shorting a stock. Just picture the down sloping line, followed by a rise in prices, and then resuming to the downside.
2) Get in the right mental state of mind: Historically, people who short stocks have been given a bad name and a bad reputation. This negativity can transfer into one’s own mind for anyone involved with shorting stocks. This negativity must be overcome because trading with these feelings can be detrimental and help cause poor results. Instead, thinking positively will almost always be beneficial while trading.
The negative sentiment towards shorting can be overcome if it is looked at in further detail. For example, many short selling individual traders are frowned upon because of Naked Short selling.
You may have heard about Naked Short selling yourself, or at least the terminology. If so, you probably have a negative feeling about it as well. The problem with this „general negativity“ surrounding this topic is that Naked Short Selling occurs at the broker level and above, not the small individual trader level. This is completely out of the small traders control and should not be frowned upon at all in the individual traders view, at least as it pertains to ones own trading.
The next time you consider short selling a stock, be sure to recognize a good entry point and be in the right mental state of mind before placing your order.Immobilienmakler Heidelberg Makler Heidelberg
Source by Larry Both