Hi
The tactics / strategy for going short are the same as those for going long but in reverse.
The psychological barrier is that when long, your losses are limited to your invested amount (share value goes to zero) but when short your losses can be unlimited (theoretically) as there is no upper price ceiling.
The practical aspect is, unlike an institutional investor as a retail investor you cannot borrow shares from your broker to sell short, so the only way to go short is to sell a futures lot.
This means a high exposure at a single price point and so the position must be timed / priced carefully.
Since you are leveraged, both profits and losses are higher approx 2.5 times the normal for the invested amount.
Managing your exposure and planning for margin requirements is important to avoid over-trading.
Trading in liquid, high volume / turnover large caps and Nifty is to be preferred.
Unlike commodities in stocks there are no resting (GTC) stop losses, so your trading plan should be able to manage your position when there is an adverse gap up.
I personally prefer stocks with low spreads eg TATASTEEL / ICICIBANK as compared to say BANKNIFTY / HDFC/ HDFCBANK
Also you can buy puts (limited liability) or sell call (unlimited liability).
You can use these options in reverse to hedge naked short positions.
This means, you limit your loss to a fixed amount based on your initial position.
Your short becomes profitable once the profit on the position exceeds this hedged amount.
As usual, the longer you wait to cut losses the bigger they get.
The deeper your pockets the better
The more conviction you have in the trade ie a written method with reasons on why and when and where you take positions and book profits the better
cheers
SSR
sangeeta kalra wrote:
nice and to the point explanation. can u explain me the cautions required for short selling ?
--- On Tue, 17/11/09, N Samir <sowsoreap@yahoo.co.in> wrote:
From: N Samir <sowsoreap@yahoo.co.in>
Subject: Re: [sharetrading] Sharekhan
To: sharetrading@yahoogroups. com
Date: Tuesday, 17 November, 2009, 2:40 PM
Hi
what do you want to know
SSR
(Re StopLoss orders, keep a difference of 0.25% between the trigger price and the sell price to ensure that the SL gets executed once triggered.
If the specified range is too low there may be no buyer in the range and your order will be placed as a ordinary sell order on the exchange at the sell price you specified.
IT WILL BE EXECUTED ONLY IF PRICES TRADE TO THAT LEVEL AGAIN
The difference between the trigger price and the price your order gets executed is called slippage and depends on the liquidity of the market you trade.
If you trade online your SL order is 'good for the day' for retail customers.
You will have to place your SL order afresh every morning.
Ankur Dhoot wrote:Anybody having sharekhan as trading platform and performs futures trading on that???? plz reply
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