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Strategies & Market Trends : Befriend the Trend Trading
SPY 694.04+0.7%Jan 9 4:00 PM EST
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To: Dr. Stoxx who wrote ()5/19/2000 11:30:00 AM
From: Dr. Stoxx  Read Replies (1) of 39683
 
Was just PM'd a question about shorting. Since our reversal system requires it, and there may be readers who haven't shorted before, let me repeat my response:

First you have to have a margin-enabled account.

To short, you pretend you own the stock and are selling it back to the market. You therefore enter a "sell" order, just as if the shares were already in your account. This opens your short position...but you do not actually "own" any shares. What you have done, in fact, is borrowed shares from your broker (who must own them first before you can short them...and this limits which stocks can be shorted) and sold them to the market.

To close a short position, which can be done anytime (unless the trade goes badly against you and your broker demands you close the position), you simply enter a buy order for the same number of shares you shorted. Again, you do not then own any shares. What you are doing is handing the shares back to your broker to replace the ones you borrowed. You get to keep any profit resulting from the transaction. You also have to pay for any loss, of course.

The way the order is entered depends somewhat on the online service. With Datek, I enter orders as usual: only reversing the normal order: sell first, then buy.

Hope that helps...TC
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