The ideal versatile daytrader can make money in all kinds of markets -- bull, bear, or sideways. This is due to the ability of the ideal daytrader to be adept at going both long and short trading strategies. Most traders and individual investors out there only go long stocks like 99% of all mutual fund managers. And I know some very successful traders who only short stocks. Unless you are an institutional trader who is only responsible for buy-side trades or one responsible for short-side trades, it is important for all daytraders to learn how to utilize both long and short strategies.
As a contrarian trader myself, I tend to make a majority of my money on short positions during a bull market and in a bear market I tend to make most of my money trying to pick bottoms. Just as I have experienced in the past few weeks, in this current bull market with not much volatility finding good bottom picks is like finding a needle in a haystack. Only around ten percent of my trades have been on the long side. Yes it's still possible for a daytrader to make a nice living going only long stock or going only short but you can ideally make twice as much money at the end of the year if you do both.
Why do almost all mutual fund managers fail to beat the S&P 500 benchmark? There are many reasons but in my opinion it is because of their lack of being able to go short. I don't know the exact figures but almost 99% of mutual funds are long funds only. They are forbidden to short stocks and just avoid investing in overvalued companies. Hedge funds on the other hand are able to utilize both long and short strategies and overall beat the performance of the general mutual fund. Many reasons for this outperformance are that hedge funds can be more nimble in securities (getting in and out) and most importantly they can short stocks. When the market goes up, almost everyone makes money going long. But when the market goes south, mutual funds are now bagholders of stocks. The same analogy can be applied to the contrarian daytrader who only gets long stocks. When the market makes new highs, there are little opportunities for him to bottom pick stocks and the trading days will seem long and never-ending. And if you are a trend trader who only gets long stocks, the same applies to them when the market starts falling. Don't be the trader who watches the market in boredom because he is afraid to short stocks or afraid to buy stocks. Learn how to be adept in going both long and short stocks to maximize your daytrading potential earnings.
I have often been criticized by other traders that shorting parabolics is not a strategy that anyone should be doing. I know that this type of shorting is "not suited" to those criticizing but if you come join my chatroom, you will witness real-time how much consistent money can be made from them if done correctly as with any type of trade. I compare this saying "not suited" to my type of trading as "I don't trade that way so it must be the wrong way to trade." People need to realize that there are many ways to day trade and profitable trades always speak for themselves. To this date I have not had a MookTrader subscriber cancel his subscription because they didn't like me picking bottoms on downside parabolic moves. Is there really a drastic trading technique difference between shorting parabolic up moves compared to getting long on downside parabolic moves? I don't think so. You just do the opposite from the other strategy and have similar types of risk on. There may be some limitations to shorting due to locate restrictions but that is a whole different story. Bottom line is don't be afraid to get short a stock.
The more trading strategies that you can be adept at, the more money you can possibly reap. Be the most versatile trader you can be. Learn how to go both ways in the stock market for maximum earnings potential.
- Hubert Tsai