Part 5 - A word about going short
According to research the majority (said to be around 80%) of retail CFD traders are not comfortable being short of the market.
However, in our current environment of stable markets one day followed by volatility the next, it is highly probable that being a long-only trader will lose you a lot of money.
There is only one answer: you must become comfortable with shorting the market. You must consider shorting as frequently as you do going long, and you must use it in your armoury of frequent trading strategies, irrespective of market conditions.
Sources tell Interactive Investor that in the prevailing market conditions markets have tended to fall three times faster than they rise. The reason why shorting has been regarded as belonging to the realm of more experienced investors is that, in theory, you have unlimited downside. While it is true that losses could be significant if, say, you short a company just before it receives a bid approach, the 'unlimited' moniker is clearly ludicrous as no share price will continue to rise forever.
Remember also that City analysts, the so-called "teenage scribblers", will almost never tell people to sell individual stocks, so even if a company's outlook is atrocious, they tend to talk up a company's prospects.
Such a negative assessment could, after all, cost an investment bank a lucrative advisory fee if that company uses its services.
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