Short Selling – What Exactly Is It?

Short Selling – What Exactly Is It?

As we approach the first full month of fall, the leaves have started changing and the nights are becoming chilly. But with only 10 more weeks left in the year, that begs the question… will you achieve your trading goals before 2017 comes to a close?

It’s no surprise that the markets are at all-time highs and there is money to be made when the markets go up. But when a stock is falling it’s important for traders to practice short selling.

Sure, it’s a common strategy for traders to purchase a particular stock when they expect it to rise. It fits the old saying; buy low, sell high.

But short selling takes the opposite approach.

What is short selling anyway?

According to Investopedia, short selling is the sale of a security that is not owned by the seller. It is motivated by the belief that a security’s price will decline, enabling it to be bought back at a lower price to make a profit.

Ok, wait. What does that even mean? Let’s break it down.

When you believe a stock is expected to go down you can practice short selling that stock. This means you are agreeing to enter a position on a stock now, but you’re going to pay for the position later when the price is lower. The price of the stock when you made the commitment is your entry price. And the point at which you get out of the position is your exit price.

Because this strategy is built on the principle that you believe the stock is going to go down, the difference between your entry price and your exit price is your profit as long as your exit price is LOWER than your entry price.

Conversely, if your exit price is higher than your entry, the difference is your loss simply because this position is driven by the fact that you thought the stock was going to go down and it did not.

How can VantagePoint help with short selling?

VantagePoint uses the power of Artifical Intelligence. Because of this, the software is able to predict market strength and direction 1-3 days in advance. Even better is that the software is up to 86% accurate. As a trader, this means you’ll know with confidence when an uptrend is beginning or ending and can time your entries and exits with correctly. This works with a buy low/sell high strategy, as well as short selling a particular market.

Take a look at Chesapeake Energy ($CHK).

Short Selling with Chesapeake Energy

If you were short selling, you would wait for the blue line to cross below the black line. That tells traders the uptrend is over and the price of the stock is expected to fall. Your exit would be when that blue line crosses back above the black line signaling another uptrend. The difference between your entry point and exit point would be your profit per share.

At your entry, the price of Chesapeake Energy was $4.80. At your exit, the price was $3.70. In 22 trading days, the stock lost $1.10 per share. But that loss is your gain. By short selling this market and owning 5,000 shares, your profit would have been $5,500.

Are you ready to short the market with VantagePoint?

Turn the losses of a stock into your profits by short selling. Request a personalized demonstration of VantagePoint today and learn why more than 25,000 traders worldwide trust the software to help them achieve trading success.

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