Page 244 - THE MARKET WHISPERER

240 PART 8 - Shorts: Profit From Price Drops

explode it! Usually the bubble will burst much faster than it would have
if left alone, but on the other hand, bursting bubbles prevents additional
investors from bringing their money into the market and afterwards losing
it all. Shorters are the oppositional force to investors, a kind of contra-
balance in bubbles and overpricing of all kinds. In short: they are the ones
who monitor the market, bring in liquidity, and warn of mishaps waiting to
happen. They hold an important role, and are aptly rewarded. In addition,
once the bubble is burst, they are the buyers preventing the stock from
going to zero!

Shorting: Why?

Two-thirds of the time, the stock exchange trends up, and one-third of the
time it drops. Sometimes the periods of dropping markets are long, and as
with the Dot-Com Crash of 2000, can last for several years. Crises occurred
in the past, and crises will occur in the future. Even during periods of
dropping markets, a trader has to earn a living. During such periods, I
have no intention of looking for a new job in hi-tech. This is when shorting
comes into play. When you buy a stock, it is called going “long.” A “short” is
the opposite action.
• We use shorts to try and profit from down trending stocks.
• Usually the laws of entry for long buying are valid in reverse for shorts.

We will learn more about this later. In this chapter, we will examine how
shorts operate.

Shorts: the Potential

The potential for profiting from shorts is far greater than from longs. In
fact, most of my profit as a trader derives from shorts. Why is there greater
chance of profit? For two main reasons:
• First, because stocks fall faster than they rise.

Why? A pressured investor will sell faster than it took a greedy investor
to buy a rising stock.
• Second, shorts are a superior means for making a profit, since 99% of
the public does not understand them nor knows how to execute them.
As usual, the big money is where the public doesn’t know what to do.

SMART The majority of the public does not know how to execute
MONEY a short sale. The big money can be made where the public
does not know what to do!