Shorting is notoriously unconventional for most investors because it is counter-intuitive to regular investing. Essentially, shorting or short selling means that you are selling in advance even when you do not own any of those shares but at the same time, have entered into an agreement that you will buy back eventually. This might sound a little complicated but actually, the way Shortists make money is still using the same “Buy Low Sell High” logic, or if you like, “Sell high Buy Low” logic. So am I promoting short selling? A Big NO. I do not agree that investors should spend a considerable amount of their time and energy to bet against a company for profits. Instead, I am going to share one of my favorite trading techniques which is similar to shorting but not exactly short-selling any shares.

Sell first and buying back cheaper at a later date

This technique is not difficult to execute at all. Basically, all you have to do is to sell a certain amount of shares at $X and buy back that same amount of shares at ($X – $Y). This buy price will basically be calculated based on the profitability of the trade ($Y – comms) within a considerably short period of time. As a rule, you should always aim for around 1.3% to 3% net profit per trade. Consequently, this will allow you to earn 13 to 30% in a year if you manage to carry out this technique 10 times (each time consists of 1 sell and 1 buy order). The purpose of using this technique is to make your holdings pay rent as it consolidates in the market. On the other hand, selling first also means that you are betting against the odds of the share price ever dropping below that price. In other words, selling first also provides you with the “insurance” just in case it falls below your sell price.

Many stocks are no longer growing over time

Many indexes and stocks are actually still in a long-term consolidation phase. When that happens, immediately detect those counters and throw them into a list where you can execute this strategy. This strategy has been proven useful when managing stocks or ETFs that have been beaten down due to multiple bad news. Before the rebound, these counters will more often than not, consolidate for months on end. In that time, study the volatility, price changes, and reactivity to the news triggers. If you deem that it is suitable, try this method to see if it is a viable technique. A word of advice is to always buy low before selling. This is so that you have an added assurance that even if the price climbs above your sell price, you are still exiting with a profit instead of locking in a realized loss position.

Stop waiting for salvation, take action!

Taking action increases your odds to become more reflexive as an investor because share prices are ever-changing. Think about it. Those of us who have traded the big swings would have earned way more than long-term investors who are constantly played by the market especially when the price displacement stays relatively similar over time. That said, taking action also requires a deeper understanding of the counter that you are dealing with. For example, some counters are known to climb consistently over time even after a devastating blow is dealt with the company. In that case, there is really no point to trade those counters or index funds. As such, an added benefit of using such a strategy also allows you to understand all of your counters better so that when the opportunities arise, you will be able to make full use of your assets.

Closing Thoughts

There is no point in holding anymore when the stock or index funds are still consolidating for a long time. Instead of waiting for a miracle to happen, always consider your options and make full use of your assets in the market. As mentioned in the post, you can make a considerable amount of returns just by betting that the share price will eventually go below your sell price. At the same time, exercise this technique with a proper understanding of technical analysis and more importantly, the circumstance that the counter or market is in. I hope that more people will be able to benefit from such a technique and realize the profitability and fun of “shorting.”