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Finding #1 Stocks: Screening, Backtesting and Time-Proven Strategies by Kevin Matras

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Chapter 16

Short Selling Strategies for Bear Markets

Up to this point, we’ve focused primarily on bullish screens. But, of course, the market does not always go up. And while we all want winning stock screens that will make money no matter what the market does, sometimes the best way to make money is to be a short seller.

In this chapter, we’ll go over two short selling strategies and examine what items are best for helping to single out stocks ready to tumble.

Keep in mind, however, short selling isn’t for everyone. Not only do you have to specifically set up your account for this and be approved to do so, you also have to want to as well. There are unique risks involved that are different than those incurred when simply buying a stock. And each investor has to determine if it’s right for them.

But even if you’re not planning on actively shorting stocks, knowing how to spot the ones that are ripe for a fall can save an investor money by getting out before it does.

Let’s take a look at our first bearish strategy called Toxic Stocks.

Toxic Stocks

The year 2008 was one of the worst bear market years in recent history. And there was almost no place to hide. Sure, we had a few strategies that managed to stay positive, but overall it was a brutal sell-off and almost nothing was safe.

However, the short-sellers cleaned up. And while the easy money on the short-side hopefully is behind us (until the next bear market), there is always an opportunity to make money on both sides of the ...

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