Updated: Dec 30, 2020
In my wards, Short Sell is "So High or Twist Sell" 🤞🔥💹this is widely applicable to day trade stocks. But the main contrast of Short Sell is different. Basically, short selling occurs when an investor borrows a security and sells it on the open market, planning to buy it back later for less money. Also, short selling has a high risk and reward ratio, It can offer big profits, but losses can mount quickly and infinitely.
To explain in a short about Short Sell from a different perspective,
So High - The stock so hot right now, may go higher than the average value
Twist Sell - To create the impression of increased interest in security and thereby raise its price. You will leverage your money to get a higher return on a stock that has a lower price.
Buying in a position when the stock is going higher, which has strong probability, strong resistance over support. Instead of buying dip by minimizing the risk you'll open a short position to hold for a short period of time to get a significant return based on your daily goal and limitations and your account value.
Short selling is not a strategy used by many day traders largely because the expectation is that stocks will rise in value within a short time. Particularly for investors who are looking at the long horizon, buying stocks is less risky than short-selling the market during the same day or within an hour or short. Moreover, if a day trader is sure that a stock is likely to drop in the short term. Such as, if a company is experiencing difficulties and could miss debt repayments or they have missed the quarter EPS (Earning Per Share), there's a high chance that stock may go lower low. On the other hand, While short selling does present investors with an opportunity to make profits in a declining or neutral market situation, it should only be attempted by day traders due to its risk of infinite losses.
When Should I Short Selling? Three things you should know about short selling,
Possibility of high profits
Little initial capital required
Leveraged investments possible
Possibility of High Profits: Usually people who are short-seller they used to trade stocks which have a lower price and high rate of gaining value within a short time. The only goal is instead of holding a stock for a longer period of time they sell it in a short period of time, such as it can be an hour or more than that based on the movement or it can be within 5 to 20 minutes. Especially stocks below $1.00 and sometimes below $5.00, these are penny stocks and stocks above $5.00 they are not penny stocks but have a higher return probability trading rate of $15.00 to $20.00
Moreover, this kind of stock has a high movement rate of gaining huge value and at the same time losing infinite value. Such as a stock valued $2.00 can go higher over $7.00 over the trading period which could bring a +250% return within a short time. Potentially, in a certain position, people will start selling off when it will be overvalued. Sometimes it depends on the momentum, resistance, and support on the stock value.
Little initial capital required: The biggest advantage is a trader doesn't need to hold lot of money to trade this kind of securities. Because the price is very low and has a high return value over risk. A trader can gain a 10 to 100% value withing an hour or short based on the momentum with small-cap account size, and they can flip their account value 5x times from the normal return.
Leveraged investments possible: The biggest advantage is to trade penny stocks "leveraging your money instead of borrowing from the broker". What does it's mean? In short, you have $5,000 in your marginal account, and you'll get 3x leverage "Buying Power" from your broker, sometimes it depends on the security that you are going to trade (marginal rate varies stock to stock). So, instead of borrowing the money from your broker, you will leverage the money that you have in your account, which is $5,000 in cash value.
Your daily goal is to get a return for 2-3% on a daily basis until you have $25,000 in cash value. This is for minimizing the risk of your account valuation. Because over the six months period your goal is to increase the account value by trading standards instead of depositing money and trade with a huge position it has some sort of risk. Now, if you want to get a small return without taking a big risk on penny stocks or stocks over $5.00. You can get a return for 2-3% which is $100-150 for $5,000, 3-day trades in a week which will bring $300-450 per week, and in a month $1,200-1,800 | YRS. $14,400-21,600 USD Is has a significant amount of return on less risk, as you can't generate that amount of return if you trade with high valued stocks on a daily basis. However, if you leverage your account value which is $5,000 to +10-20% on a daily basis by trading stocks between $1-$15 or below $50.00, which is very easy to get returned by taking a short sell.
For example, you have purchased a stock priced at $1.50, @3,330 shares for $5,000 and you have sold these shares at $1.8, which is bring $0.30 per share which is $1,000 USD return in a single short sell, it's aggressive and return is very high because you have leveraged your account value 18% than the daily goal. This is the less aggressive way to short sell a stock. It's a little hard to keep consistency on a daily basis to gain value +20% every day unless you gamble by leveraging the money for an +80% return. You'll set stop loss for 1% or more based on your position size. However, sometimes you'll see potential opportunities in that case you can modify the order and pull the limit to little more. for $1.00 or little less return per share.
It is very important to have a daily goal when it comes to day trading because you can return the money and your account value as well for being aggressive. So, if you can't keep consistency you'll end up with losses and being frustrated.
Keep learning more and more and do paper trade and make your own strategies and test them, let's see how it works for you. Because it's all about trial and error.