How To Short The Stock Market And Make Thousands

How To Short The Stock Market And Make Thousands TodayAt this point, everyone needs to know how to short the stock market. The common knowledge thing is to buy a stock and hold on to it for the long term. I would say that wisdom was all fine and good back in the day, but we live in a period of extreme market fluctuations. Sitting back and watching your portfolio shrink is not what I consider the best way to make money in the stock market. This is why you will want to know how to short the stock market, so you can make money when it is going up AND when it is going down.

What Is Short Selling The Stock Market?

Short selling a stock or EFT is nothing more than selling the stock to someone and getting paid for the sale, but not delivering the stock until a later time.  An easy way to think of short selling is this way…think of it as this, you sell your friend a pencil for $1.00.  Your friend pays you the dollar and you promise to give this person a pencil in the future.  Now your job is to hope the price of pencils drops to below $1.00 so you can purchase it and make a profit.  Your friend believes the price of a pencil will rise above a dollar and that they made a wise investment.  I always like to explain it as making money on stocks that are going to fall in value.

How To Short The Stock Market And Make Thousands TodayWhen looking at is through stocks, all you need to understand is that you are betting on the stock price to drop.  The most common way people buy stocks is for the long term appreciation of the stock price.  Sometimes though, you are wise to short sell a stock when times call for it.  Take for example a bull market run of over 5 years.  At this time, you may think that a HUGE bubble has formed and the fact that stocks have tripled over the last 5 years is a little too much to withstand.  So you now buy a triple bear ETF, such as the Direxion Daily S&P500 Bear 3X ETF (SPXS), in the hopes that this very wise investment will make you a substantial amount of money when the market corrects itself.  The example ETF I used above will pay you 3 times the amount the S&P 500 falls in percentage terms.  So if it falls 2%, you will make 6% profit.  Vice Versa though, if that market goes up 2%, you will lose 6% of your money, so it is prudent to watch your investments carefully.  This is why you need to know how to short the stock market.

Why To Short The Stock Market?

There are 2 main reasons why you want to learn how to short the stock market, pure speculation and hedging.  Each has its own merit, but neither should ever be casted aside as a legitimate way of profiting as you go through market corrections.  Of course you can try the old way of buy and hold forever and this should work out for you with solid single digit returns.  But for those investors looking to make double digit gains, shorting the market is a solid way to achieve that.

Stock Market Speculation

The first and most risky reason to learn how to short the stock market is because of pure stock market speculation.  This speculation usually erupts when the stock market goes for long periods of time one way or the other.  I like to look at the period from 2007 to 2014 as a prime example of stock market speculation.  When the housing bubble burst in 2007, there were a number of people who realized this and speculated that the market was going to tumble way down from it peak.  And tumble it did!  It roughly lost 50% of its value before stabilizing.  Those people that shorted the market back then, did so with a large handful of speculation as to how far it would drop.  For the buy and hold crew, they lost their shirts during this downturn.  When the market hit the bottom during that correction, many people to start speculating that it was time for another bull run.  Many investors started to load up on equities and made a killing over the last 5 years.  But now, many people are bracing for another 2007 like correction and speculation for shorting it.  Now the question is, are you going to ride it out and take the loss or short it and profit while it falls.  There is something about going to bed at night knowing that you made the right moves and will still be able to retire on track if not earlier.

Stock Market Hedging

How To Short The Stock Market And Make Thousands TodayOne of the more interesting reasons for people to short the market is to hedge against losing their profits.  They use short options in case of market corrections.  They have enjoyed a long run of profiting and now are concerned that a sudden market crash could erase a huge chunk of the profits.  So the idea here is to lock in some profits by buying a short option that will protect these gains.  The one thing to keep in mind is that there are plenty of rules regarding short selling the stock market.  You are not allowed to short sell stocks that are valued under $5.00 a share.  They also have special rules about the actual lot size that you can actually short.  The securities and exchange commission is all about stopping market manipulation and that especially goes for shorting.  Learn how to short the stock market the right way, and you will make a ton of dough.  The example below is one way to look at short selling an individual stock.

The Stock Price Declines To A Price Of $30
Short Sold 200 shares of ABC at $75 $15,000
Short Sold 200 shares of ABC at $75 -$6,000
The Overall Profit From This Short Sale $9,000

Now the above example is one that shows you how to profit from a good short sale.  The next chart will be an example of what happens when you perform a short sale that does not do well.  You will see that this investor ended up losing $5,000 in total from this transaction.  I would remind people though, that it is just as easy to lose money going long with a company as it is trying to short bad companies.  Learning how to short the stock market can be easier then figuring out companies to go long with.

The Stock Price Appreciates To A Price Of $100
Short Sold 200 shares of ABC at $75 $15,000
Short Sold 200 shares of ABC at $100 -$20,000
Your Profit -$5,000

Things To Consider Before Short Selling The Stock Market

There are a number of things that you need to consider before short selling.  The main thing is that your losses can go on forever.  In other words, if I short sell a stock at $100 a share, the price of that stock can go to zero or up to whatever price the market pushes it.  On the down side, I will double my money if it goes to zero.  But on the up side, if the price hits $300 a share, I have lost twice my initial investment.  More importantly, there is no reason to believe that the price couldn’t continue to rise and thus increasing your losses.  So beware of your choices in short selling and always have limits to what you are prepared to lose.  If you learn how to short the stock market the right way, you can make some huge cash.

If you go back to the first day the stock market was opened, you would see a chart that shows a lifelong increase in its overall value.  Do not enter this market short selling it and expect that to happen more than it to rise.  History has pointed out that scenario does not happen over very long periods of time.  Your best bet is to have well thought out entry and exit points that will limit any downsides or lock in potential gains.  Greed will be one of the most dangerous parts of short selling.  Traders always try to time the market and this can lead to some very bad decisions.  Do yourself a favor and go in with solid plans and you will not regret it.

Learn To Be Patient When Short Selling

You should know that even if you do all of the proper research and due diligence, you most likely will not be able to time the exact entry and exit point to short selling.  Just recently, I decided that it was time to liquefy my equity holdings and transfer them into a short position.  I did this about 4 weeks too soon and had to suffer through 4 straight up weeks.  But eventually, the market started to correct and continues to correct.  The fact that I was patient allowed me to regain my losses and quite a bit of profit as well.  It is like the old saying goes, it is hard to catch a falling knife.  This goes for trying to short a rising market as well.  Make sure you have a solid data supporting your decisions and then be patient.  If you have done your due diligence, then you should be able to have the odds in your favor and eventually the profit as well.

Learning how to short sell the stock market in general is a very risky venture, but one that can bring you huge gains when everyone else is losing.  Take some time to understand the how’s and why’s of short trading and then you will fully grasp the complexity involved and the massive profits that can be attained from it.  Worse case scenario is you buy some put options to protect your long positions and the market crashes and you lock in a certain amount of your profits.  Another strategy is to short the market and after a certain percentage of falling, you will then start cherry picking stocks to long for the eventual recovery.  This is the exact strategy I am using to try to profit from the current market.  So far it looks very promising as I am in the right place at the right time.  The problem will be trying to figure out an exit point.  I have already discussed a few of these possible exit points in some of my latest articles concerning the correction.

At this point, you need to read these articles to gain a better understanding of how to short the stock market and how you can make a tidy little profit in doing so.

Which Stock To Buy Today?  (Some ideas on how to cash in on this market)

Best Stocks To Buy After The Crash  (One of may favorite articles)

What Is Going On With The Stock Market?  (A must read to understand how we got to this point)

How To Short The Stock Market

Speak Your Mind


Notice: Any information that is written on this site is for educational purposes only. It should never be considered as financial or investing advice. Anything you read on this site is just informational and that is it. I am no longer a registered financial advisor and licensed by the SEC. I am now just a blogger who enjoys writing about stocks and making money online. You should always seek a professional financial advisor for advice on investing and any stock you are considering. Remember that investing is inherently risky and you could lose all of your money. I am also an affiliate of some of the items discussed on this site. In other words, I may be paid for people buying stuff off of this site and the links on here as well. This is how I am able to keep the site up and running.