Part 3 of 12 part Short Story on Short Selling series. Investors that regularly and successfully sell short are knowledgeable and experienced traders. A novice investor can learn how to successfully sell short, but should not start there. A shorting strategy should only be used by experienced and sophisticated investors.
Presuming an already uptrending or bullish market, a strong bull run for an individual stock needs momentum to continue upward price movement for any significant time. The bull icon serves interchangeably to represent a rising market, an investor buying long or the rising stock play itself. At such times we can say the bulls or herd runs as prices, volumes and investors charge ahead! At a minimum, momentum needs both an increasing price for the stock and an increasing volume of shares traded. Simple basic trading of a momentum play means buying a rising stock that on most days continues rising or trending to ever higher prices. Profitable momentum play execution requires trading out or selling the stock at the higher prices. Most such plays unfold over a matter of weeks or a few months; few extend longer than a year.
A symbolic black figure with a clock face sprints after a line of dollars. Representing trading and a trader chasing dollars to find profit. The article makes the point that trading is not investing although extreme media coverage can leave the impression that trading is investing and that investing is trading. It is not. Trading refers to a broad range of shorter term strategies that can be used by an experienced investor. The essence of trading is an investor’s belief that a buyer can be found, in the near future, to pay a higher price for a share being purchased today. If that bet is right, the investor profits, if the bet is wrong, a loss results.
Classifying investment strategies into five broad groups arranged low to high risk, Income, Value, Growth, Trading, Speculation, helps new investors understand some of their many investment choices. Choosing from these investing strategies can set you on the path to financial security. While there are numerous variations within each broad strategic group; no strategy offers the impossible: risk free investing.
Investment danger impatience zaps wealth. Let rising stocks add to your wealth. Early selling takes away all your upside potential wealth.
Benjamin Graham and a market myth: voting emotions or weighing facts plus discussion of the myth that small investor behavior causes market panics. Stock market volatility can startle investors and cause fear. However the ‘Small investor behavior causes market panics’, is self-righteous, self-serving nonsense promoted by some stock market professionals. When you know and understand the stock market, you can confidently watch markets without worry.
Headline news warnings and stock market risks explained as possible market overreactions. Reactive trading and emotions can drive market action. At such times, turmoil, not smart investing decisions, drive markets. To avoid being spooked, and trading with your emotions, inform yourself, do your homework and take the long view.
Investing trading and speculating differ; in both approach taken to the market and how long a position gets held each strategy has fundamental differences.
The trading approach to the stock market lies in the middle of the risk spectrum while overlapping the other basic approaches. That puts it between a conservative investing strategy based on profit making companies and aggressive speculative strategies. For consistency we will refer to all plays that accept high risk seeking significant short term rewards […]
Investing, trading and speculating are all ways to produce stock market gains. They can all make money which is the only reason to get into any equity market. There are an infinite number of variations of these three basic approaches that can be used to make money. These approaches offer a huge range of possibilities […]