Many new traders focus primarily on bullish trades starting out, it's natural to want the stock market to go up. I know the feeling: I was reluctant to short stocks when I first started trading as well. Good Kids Trading (GKT) is here to help you disassociate bearish trades as negative or scary, and help new traders get past any preconceived notions, negative thoughts, or fear. The market is going to do what the market is going to do, lets use ups and down to our advantage and become better traders! Have you heard the saying "staircase up, elevator down"? Often times a stock / underlying rises slowly over time, like climbing a staircase one step at a time. Then suddenly there is a quick drop, like going from the 6th floor to the ground in an elevator erasing days or weeks of gains in a much quicker, more violent move.
The chart below shows the staircase up with a couple elevators down, you can see how quickly this stock drops after so many stair steps up:
Every bullish trader has seen this elevator down drop, we accept the risk without too much thought. If the underlying drops to a set price and our stop loss order is triggered the trade is over. These same stops are used for short trades as well. There is one small difference: a bullish trade gone bad stops at zero, but with bearish trades losses could be unlimited in theory. It's highly unlikely and you can setup defined risk short trades if this concerns you. If you catch the elevator down, you will experience quick wins on your bearish trade. Just to be clear, I don't want to give the illusion that shorting is simple or claim that bearish trades are easy; this discussion of stairs up elevator down is to bring awareness to how violent the moves down can be. It's important to focus on bearish and bullish trades and encourage you to open your mind. Bearish trades are not that much different than bullish trades.
Common reasons or thoughts that might be preventing you from taking bearish trades: Fear of loss: In theory shorting a stock (with shares) carries the risk of potentially unlimited losses, as the price of a stock can theoretically rise indefinitely. It's not likely an underlying will literally moon, but it's possible. This risk is similar to a bullish trade going to zero overnight. If this is a concern that is preventing you from shorting, consider defined risk trades using options! Lack of understanding: Shorting stocks may seem like a complex concept, and many newer traders may not fully understand how it works. Educate yourself on what options you have! Ask questions in GKT's discord. We have some resident permabears (traders who like shorting more than taking long positions). Emotional attachment: Remove your emotions, remove your ego! Shorting a company or underlying has nothing to do how you feel about a company's mission. Whatever strategy you use, follow your plan and do not get emotionally attached to any company, any ticker, or past experiences. Lack of confidence: Newer traders may not feel confident in their ability to identify good short selling opportunities or may not feel comfortable taking on the risk of shorting stocks. Limited options: Some brokers may not offer short selling for certain stocks or may have restrictions on short selling for newer traders. Shorting is simply a way to reduce your account's delta, or the overall direction of your portfolio, and diversify your holdings. By having a mix of long and short positions, you can potentially reduce your risk and increase your chances of making money in any market condition.
Overall, shorting stocks can be intimidating for newer traders, but it doesn't have to be! It's important to educate yourself on the risks and rewards of bearish trades and to feel comfortable with the concept. GKT has multiple strategies to add bearish delta to your portfolio. We setup short trades every day.
If you want to learn more and become a more profitable trader checkout our discord! Trading in a community of likeminded people is far more fun, educational, and profitable! Join our discord today: www.goodkidstrading.com/join