Shorting Stocks During Market Downtrends

This section on shorting stocks is part of a series of pages related to short selling to help people become a little more familiar with this trading strategy.

Many people want to know how to make money while investing during recession, or any market downtrend for that matter. One way is to learn about shorting stocks.

This page will be geared more towards looking for the actual trades and some examples of possible entry and exit techniques. For more background information on this and related topics, take a look at these other pages on this website:

As discussed on my other page, Introduction to Short Selling, this trading strategy will enable you to take advantage of down trending stocks.

It doesn't matter whether it is a bull market or a bear market, there are always stocks that will provide good shorting opportunities.

Of course during a bear market, especially one for any prolonged period of time such as a investing during a recession or depression, will provide many great opportunities.

One thing that will help in any type of trading is to trade with the trend. So if the major market direction is down, look to be shorting stocks, not going long. Don't fight the trend.

During rising market periods, looking for opportunities to buy stocks and increasing the odds of getting in at a good price, can often be obtained by waiting for a pullback in price. In other words, don't just jump in on a strong uptrend, wait for a pullback in price.

The same is true for shorting stocks. Looking for a stock in a downtrend that has risen to a prior resistance level (in this case a pullback from the downtrend), is the same strategy as people use for long positions, except is upside down when looking on a stock chart.

Take a look at the chart below. You will see examples of multiple opportunities to take on a short position here:

shorting stocks

This is an example of a down trending stock that has risen to a prior resistance level several times and then continued is decline after failing to break resistance. This is shown at pullback #1 and pullback #2 in the example.

You will also see two additional types of entry points to go short where the price dropped down through prior support levels, as shown at #3 and #4.

Another thing to keep in mind is that these techniques can be used for various time frames. Meaning that a swing trader can look for examples as mentioned above, while a day trader can use the same techniques using an intraday chart.

Here is an intraday chart that shows a downtrend and an intraday pullback higher to an intraday resistance level, which provides a high probability intraday shorting opportunity. (Sorry for so many "intradays" here) This is the same technique as shown above, except using a stock chart with a different time frame.

shorting stocks intraday

Remember that whatever method you use to enter trades, make sure you use a stop loss that is at the right level for your trading strategy and risk tolerance. In the examples of shorting stocks above, placing a stop loss just above your entry price will help make sure you get out of your position if you are wrong.

Return From "Shorting Stocks" To "Short Selling"

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