An argument used for not going short is that with a long position your potential gain is unlimited and your potential loss is only as much as the price of the stock. The reverse is the case when one is short; then the potential gain is limited to the price of the stock, but the potential loss is infinite. Theoretically this is true. But we, as traders, are not going into any stock with the idea of holding it until it goes to zero or infinity. Moreover, we must always use stop orders to protect against excessive losses. So, on that basis, the preceding argument against using the short side of the market is absurd.
In a way, going short could be considered safer than going long. The reason is that stock prices tend to move faster when are going down than when they are going up. It is just about two to one. In other words, a stock typically drops twice as quickly as it rises. That means that buyers, long a stock, have the potential for the stock to go in their direction slowly or against them rapidly. They have little time to correct their mistakes. In contrast, traders who are short a stock are likely to see the stock go with them rapidly or against them slowly. They have more time to recognize and correct their errors.
As for the thought that selling a stock short is somehow disloyal to the economy, the country, or the corporation, we are not trading stocks to influence their longer-term swings, regardless of their longer-term direction. We should, as traders, have little or no interest in the long-term prospects of a company. A stock is a vehicle for making money.
For all these reasons it is important that the trader be as willing to go short as to go long. He or she must have a margin account, but does not have to become overly aggressive by using borrowed money. To ignore the short side of the market is to elimiate half the opportunities, and to be tempted to buy into markets that are in a decline. It is always better to match your trading to the market’s direction. Short selling is sometimes the only way to do so.
So what is gap, powerbox. we will going through in the next post. thank you guys. any paticipated will be welcome.
