Share trading, as opposed to share investing, is about buying and selling shares for a living. It is like buying and selling any item for a living. You buy at a certain price and sell to make a profit.
Shorting is the same deal, except people find the concept rather confusing. Shorting a share or an index means buying high and selling low for a profit. This sounds silly to most people, because nobody pays more for an item and then sells it for less to make a profit. This means making a loss-except when shorting the market.
Shorting is the easiest way to make money on the share market. It is the easiest way because you do not have to worry about the market crashing and you making a loss. When the market crashes and people are talking about everyone making losses, the person shorting is making profits. Jesse Livermore, said to be one of the greatest share traders, made most of his profits from shorting shares.
The reason why shorting is the easiest way to make money on the share market is people are more fearful than courageous. Everybody has fear drilled into their subconscious so much that once an image of loss starts to grab hold of a person, irrationality starts to take control and the person will begin to sell shares at any price. When this emotion starts to grab hold of a multitude of people, panic selling sets in, and share markets crash. The markets come down so quickly that in a matter of days, a person shorting the market, a share, currency, or commodity, is able to make very quick money easily. This is how George Soros was able to make $1 billion dollars in a single trade in one day.
How many people do you know who have made that much money? More to the point, how many people do you know who have made that in a single day?
George Soros made that money by shorting, not the share market, rather the currency market. Soros made his money shorting the British Pound. However, what this does is demonstrate that the easiest way to make money on the markets, be it the share market, commodities market (oil, metals, agriculture), index or currencies.
Fear and greed control the markets, but fear is a stronger emotion than greed. This is because fear is embedded in the subconscious when children are small. And while even you might be courageous enough to face fear head on, once it rears up within you, it will cause you to be unstable and cause you to act irrationally. This is why it is easier to make money from people who are fearful of losing more still, because they will sell for less.
To be a shorter means that you have to go against the grain of popular wisdom. Share markets go up, not down, and, besides, down is limited, whereas up has no limits. Many brokers will tell you that the markets can only go up indefinitely, while there is a limit to going down. What many brokers will not tell you is that companies go broke and if you are left holding the share certificates, the paper is worthless, and there is no more up, once a company is wound up.
There is a saying, “The taller they are, the harder they fall. " It is like the market, the more a price goes up, the more it has to come down. Having been caught too many times with prices crashing after I have bought, my preference is to go short.
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