Why You Should Never Short Stocks



If you want to be a winning trader,  you should never short sell stocks EVER! 

People tend to short stocks for the reasons listed below:
  1.  You think the stock is overvalued. 
  2.  You think the stock went up too fast.
  3.  A famous short seller put out a short seller report.
If you think a stock fits either 1 or 2, be patient, and wait until the market agrees with your point of view. Ideally, you would want to follow the stock and use technical analysis. When the the trend changes downward, then short it.

However, one could argue against this strategy (correctly), that the use of technical analysis isn't often accurate, especially the way it is taught in books. Just too many people using it, making it less reliable, and leaving you vulnerable to margin calls, or severe losses with put options. Although, if you had to short a stock for whatever the reasons, the route to go would be via put options.

Remember that stocks go up at a slow pace, but it takes a split second to plunge; that is why shorting is an art and timing is everything (unfortunately timing often is random as explained above).

For 3, be very careful when a famous short seller puts out a hit report(like Citron Research), they often make a ton of money on the initial scare. If you look at the majority of their track record you will often see its awful! Their short thesis revolving around being over valued should usually be ignored. Often they really do catch a stock entangled in fraud and that’s when you should move out of the way.

Currently, as this article is written GameStop ($GME) is putting off a crazy short squeeze! Do not short! The market isn't rational; it does what it wants. Sometimes you get so caught up in the emotions of trading that you forget that no matter how right you think you are and no matter how over-valued you think the stock is, the market is boss. Remember that!

Epic examples of "easy" short trades in recently years that have ruined trading careers and forced early retirement for many of those who continue to remain short Tesla ($TSLA) . Believe it or not the legendary Big Short Hedge Fund Manager continues to be stubbornly short on Tesla!

Often it is just best to avoid shorting all together, if you trade/invest in large cap stocks, you will make money as the Market in the long term always goes up (despite 2000/2008/2020 Market crashes).

Check out my other article on Why Stock Options Are Bad!

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