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How To Sell Short In A BULL Market

By Jason Markum

Investing in the stock market can be incredibly challenging to the average individual investor and professional investor alike. One form of stock market investing it seems to confuse just about every kind of investor is short selling

Though most people understand the concept of short selling, many become confused when you start talking about short selling during a bull market, but that’s exactly what I’m going to talk about in this article today because there are quite a few ways for you to make substantial amount of money during bull markets with short selling even though this sounds completely counterproductive to all common sense and all investing strategies!

I’m not going to lie to you. Suggest to someone that they make short selling a cornerstone of their bull market strategy and they’ll look at you like you’ve lost your mind. But you haven’t lost your mind at all, you’re just cagey!

The fact of the matter is, even during raging bull markets we will see periods of decline. People think of this as the stock market gasping for breath after a long run up. It’s these little gasps or downturns that offer great opportunities for selling short and making a quick buck or two; here and there.

There are several rules that you should follow when selling short in a bull market that can help keep you from getting clobbered.

First sell only heavily capitalized stocks that have very low current short interest. These stocks are less likely to get hit by a short squeeze which is a sharp rally that is caused by a lot of short-sellers rushing to cover their positions when there are too few shares available. If a company doesn’t have a heavy capitalization and you have to rush out to cover your position, there may not be stock available to purchase! Keep that in mind.

Next cover your positions at the end of the week. Why is this? During regular bull markets, favorable news can filter out over the weekend that can cause the stock to jump in price considerably at the start of the next trading week. You don’t want to wait until after that news has come out over the weekend and then scramble to cover your position in an increasing market on Monday morning. It’s better just to cover before the weekend if at all possible.

Next don’t sell short stocks that have recently made new highs or all-time highs. I know you’ll be tempted to because it seems logical that a stock that has risen high will take a period to settle back down a little. But during a bull market all bets are off and stocks can continue to rise past all-time highs without gasping for breath as it were. It’s much better to wait for definite signs of weakness after all-time highs before jumping in with a short position.

So there you have several ways to both make money selling short during a bull market and covering yourself if something goes wrong while you are selling short during a bull market. As with all investment opportunities, be sure to do your own due diligence and proper analysis before making any investment decisions.

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