Are You Afraid of Shorting?
A friend asked me…
…a few months back about the concept of shorting (i.e. Selling first and Buying later).
He was curious as to how that worked and was amused when he learned how easy it could be done in Indian markets (as compared to the US where he would need to borrow shares from the brokers first).
So, our conversation ended with him planning to give Shorting a try with a strict stop-loss and a very small position.
We touch-based a few weeks later and he still hadn’t tried shorting yet. I was a little puzzled because I knew he was trading actively and so to make it easy on him, I gave him a few shorting ideas.
Fast forward to a later date.
I was very curious to know whether or not he had tried shorting and guess what, he hadn’t.
After probing further, I came to a very interesting realisation that he had a mental block against shorting.
What about my current students? I wondered.
Would they be dealing with a similar mental block?
I collated the trades for the last 1 month that the Stage1 and Stage2 students had submitted for feedback and I found that 78% were long positions and only 32% were short.
Interestingly, Stage 3 and 4 students had a ratio of 60-40, which was very reasonable in the kind of markets we were in.
I think there is clear evidence that
beginners hesitate to take short positions.
I checked with one of my students who only took long positions and he confessed that Shorting felt “unnatural” to him and that he was afraid of unlimited losses. As you can see that the first claim is simply a false perception and the second one can be easily addressed with a Stop Loss.
Right hand, left hand
I explained to him that taking only long positions is like using only your right hand- you can still get most of the work done but boy, aren’t you missing on a hell lot?
This is one of those psychological problems that can only be addressed by de-sensitizing your brain by slowly taking small short positions.
If you have such a mental block, please consider the fact that you are missing out on at least 30-40% of trading opportunities daily.
Howdy!
If you’re here for the first time, let’s get introduced.
VRD Nation is India’s premier stock market training institute and we (Team VRD Nation) are passionate about teaching each and every aspect of investing and trading.
If you’re here for the first time, don’t forget to check out “Free Training” section where we have tons of free videos and articles to kick start your stock market journey.
Also, we got two awesome YouTube channels where you can continue the learning process.
Must-Read Articles
How to Recover from a Big Trading Loss?
Secret Weapons of Professional Traders
7 Habits of Highly Effective Traders
7 Reasons Why Traders Love Options
The Biggest Lie About Intraday Trading
Top 5 Books on Technical Analysis
Are You Afraid of Shorting?
A friend asked me…
…a few months back about the concept of shorting (i.e. Selling first and Buying later).
He was curious as to how that worked and was amused when he learned how easy it could be done in Indian markets (as compared to the US where he would need to borrow shares from the brokers first).
So, our conversation ended with him planning to give Shorting a try with a strict stop-loss and a very small position.
We touch-based a few weeks later and he still hadn’t tried shorting yet. I was a little puzzled because I knew he was trading actively and so to make it easy on him, I gave him a few shorting ideas.
Fast forward to a later date.
I was very curious to know whether or not he had tried shorting and guess what, he hadn’t.
After probing further, I came to a very interesting realisation that he had a mental block against shorting.
What about my current students? I wondered.
Would they be dealing with a similar mental block?
I collated the trades for the last 1 month that the Stage1 and Stage2 students had submitted for feedback and I found that 78% were long positions and only 32% were short.
Interestingly, Stage 3 and 4 students had a ratio of 60-40, which was very reasonable in the kind of markets we were in.
I think there is clear evidence that
beginners hesitate to take short positions.
I checked with one of my students who only took long positions and he confessed that Shorting felt “unnatural” to him and that he was afraid of unlimited losses. As you can see that the first claim is simply a false perception and the second one can be easily addressed with a Stop Loss.
Right hand, left hand
I explained to him that taking only long positions is like using only your right hand- you can still get most of the work done but boy, aren’t you missing on a hell lot?
This is one of those psychological problems that can only be addressed by de-sensitizing your brain by slowly taking small short positions.
If you have such a mental block, please consider the fact that you are missing out on at least 30-40% of trading opportunities daily.
Leave A Comment