The 2 Most Important Rules Of Short Selling
By Shmulik Karpf:Short selling is a highly lucrative and challenging endeavor. If performed correctly, it could be highly lucrative. If not, it is just challenging. Short selling is the act of borrowing a security from one person and selling it to another. If the price of the underlying security drops, the short seller buys it in the open market (referred to as "buy to cover"), closes the position and pockets the difference in the price. The main point of this article is to emphasize and illustrate the two most crucial components in every successful short selling.
- The first rule is to never short a stock based on valuation alone. You always need that extra something. A catalyst which will push the price down once it is recognized by the overall investing public. This 'extra something' can be in the form of an accounting gimmick, deteriorating business margins or a suspicion of corruption