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What is Shorting or Going Short?

What is shorting or going short? Despite what it sounds like, it has nothing to do with time.  Instead, it refers to a way to make money when things go down in price.  When prices go down, you can make money because you buy low and sell high, especially in the stock market.

To short a stock you are betting that the value of a stock will go down. Shorting stocks is the act of selling something that you do not own. In order to do this you have to borrow the shares of stock from your broker.

How important is shorting stocks?

It is very important that a swing trader learn to short stocks. Buying stocks is only half of the equation! If the market in general is in a downtrend, you are not going to want to be buying stocks. So in order to make any money you need to learn how to properly short stocks.

Learning to short stocks will also help you to better understand where reversals will take place. By shorting stocks yourself, you will be able to gauge where other traders are going to short stocks and cover their positions.

This can be a sure way to make money, regardless of whether we are in a bull market or a bear market!

What is “shorting stocks”?

When you short a stock, you will borrow the shares from your broker, wait until the price drops, buy the shares, then return the borrowed shares back and you will profit the difference. Here is an example:

XYZ is trading at $30.00 a share. You think that the price is going to go down so you short 200 shares ($6000.00). You are borrowing shares of XYZ from your broker at this high price of $30.00. Just as you expected, XYZ goes down to $20.00 a share.

You decide that you are ready to cash in, so you buy the shares at $20.00. Your broker will now return the borrowed shares to the owner and you will profit the difference. Since you shorted at $30.00 and covered at $20.00 your profit is $10.00 a share on 200 shares – a profit of $2000.00.

What’s a short squeeze?

This happens with a stock that has heavy short interest. Let’s say that a lot of traders are short a particular stock. If the stock begins to rise rapidly, then short sellers will get nervous and want to buy, or cover. This could add significant buying pressure to the stock and make the stock explode!

In the next blog, we will cover what it means to go long in the stock market.

Swing Trading vs Active Trading – Which style is better for you?

Swing trading:

Swing traders hold a particular stock for a period of time, generally a few days or up to two or three weeks, and they will trade the stock on the basis of its “swing,” or the movements between optimism and pessimism.

facebook 39The key to successful swing trading is picking the right stocks.  Usually, the right stocks are those that are the most actively traded stocks in the major exchanges.  This is because in a highly active market, these stocks will swing between high and low extremes, and the swing trader will ride the wave in one direction for a couple of days or weeks and then switch to the opposite side of the trade when the stock reverses direction.

There is more risk to swing trading in the sense that you are holding positions for 2+ days to months.  So if something happens whether it is political, such as presidential speeches or elections, or natural, such as earthquakes – these can affect your positions.

On the plus side, commissions for swing traders are less costly for swing traders than those for day traders because you will be getting in and out of trades much less frequently.

day trader vs swing trader

Day Trading:

A day trader will hold a stock anywhere from a few seconds to a few hours but never more than a day (generally less than 6.5 hours).

Being a day trader requires a tremendous amount of focus and attention as you are trading on the day’s gains or day’s losses, depending on if you are going short or long. All of the up and down movements can happen within seconds and minutes (as opposed to days, weeks, or months), so you need to be able to devote yourself to watching the rapid movements of your stocks.

Being a day trader also involves less risk because you are not holding the stock overnight – there are many things that can happen that can cause the stock to plummet.  But when you are in and out of positions within a 6.5 hour position (unless you are trading pre or post market), you do not have the risk of holding positions overnight. day trader swing trader 2

Commissions, however, are more expensive. On the other hand, as far as compounding your earnings goes, as a day trader you can collect your earnings at a much faster rate, whereas a swing trader may have to wait up to six months before he or she exits a position to gain earnings.

As a last note, the other option is to be a hybrid trader, i.e., to switch between being a day trader and a swing trader. You can be both, but one has to be adaptable to market conditions.  Certain conditions call for swing trading, and yet others are suited to day trading.  As long as you keep your eye on the market and continue gaining experience, you are able to do both.

Why is it so crucial to practice simulation trading before live trading, and how long should one practice for before going live?

Individuals across the nation and across the world work very hard to earn an income, pay bills, pay a mortgage, pay for children, etc., but what is even harder is to put aside for savings. And when that savings account gets to be a certain amount – large or small – who doesn’t think about wanting to invest it and potentially double it, maybe even triple it, in the lucrative world of investing?  And that is possible! So while we at DasTrader.com are an elite stock trading software company and very much want your interest and business, there are a few tips to consider when getting involved, as your success is ultimately ours as well:

practice 2  First and foremost, practice, practice, practice!  In order to be successful at trading stocks, one has to become experienced with how to trade first.  There is so much involved with trading stocks that one has to learn how they behave, and also how to deal with loss.  Stocks go up and down inevitably, that is their nature.  So by practicing in a real simulated environment where you can invest in those companies you believe will go up or down (depending on your strategy), you will be able to see just how well your strategy works before putting your hard earned capital into the markets. 

 In order to help our clients become more successful, we offer free educational resources which include a series of YouTube videos to help you become proficient with using the software and which you can find by going to https://www.youtube.com/user/dastradertv.  In addition, we offer FREE live webinars: Intro to DAS every Wednesday 4:00PM-5:00PM EST (GMT-5:00) with educators covering a variety of topics and time available to ask questions at the end.  Please click the link http://www.dastrader.com/form-webinar.php to register for our regular weekly webinar, or to request a one on one session. Time slots available for one on one sessions are weekdays 12:00-16:00 EST. (GMT-5:00).practice

 Additionally, there are the technical aspects of trading, i.e. what to trade: what type of trader are you?  Are you a day trader, a swing trader, position trader…? The list goes on.  (And, in another article we will cover in greater depth the differences between them).  But again, by using the simulation mode you are allowing yourself the time and practice to figure out which strategy works best for you.  (For a brief look at the differences between the aforementioned trading strategies, check out: https://www.bigoption.com/blog/active-trading/).  

Lastly, how long before you’re ready? Experienced traders will tell you that it does take between 6-12 months (sometimes more) of training before you are ready to go live.  So if you are serious about wanting to double or triple that savings account, consider practicing first.  For more information about subscribing for a simulation account, or for first time users with permission for a free 14-day trial, visit www.dastrader.com and click on the “Subscribe” link.  

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