When the big bad bear takes hold of the market, shorting stocks can be a profitable strategy?
Trees don’t grow to the sky, what goes up must come down, if you inhale you must exhale and stocks don’t go up forever. So what is one to do when the big bad bear takes hold of the market? How about selling them short. Contrary to popular belief, shorting stocks is not un-American nor, if done properly, any more risky than buying stocks. Plus, when you get it right, a good short can fall much faster than it takes for a typical long position to go up. The following procedure should be adhered to when developing a successful short-sale strategy. 1) Market Trend: Seventy percent of stocks will typically follow the market’s trend. Therefore, in order to have the odds on your side when shorting stocks, it is imperative to identify the overall trend of the market as measured by the DJIA. A good way to determine when the trend is down is to monitor either the 50-day or 200-day moving average of the index. Wait until either the 50-day moving average (intermediate term strategy) or the 200-day