YOUR FIRST SHORTS
Beginners often ask how to find stocks to short. I suggest thinking of all those stocks you bought and lost money on. Think of the stocks you expect to decline. Find the stock you hate the most—and sell it short.
A friendly reminder: do not try to make a lot of money on your first short, or on the second short for that matter. Sell short just a few shares.
Take your first baby steps without having to worry about money. You’ll have plenty of other things to think about—selecting a stock, choosing a profit target, setting a stop, as well as learning the mechanics of placing an order. Be sure to work out these and other issues while trading a size so small that neither gain nor loss will get you emotionally involved.
Trade size serves as a huge emotional amplifier. The bigger the size, the greater the stress. To reduce stress, especially early in the game, when you are still learning to short, trade a small size. There will be plenty of time to increase the size of your trades once you grow more comfortable with shorting.
Several weeks prior to writing this chapter, I was trading from home one morning in front of a live screen. My laptop beeped, signaling an incoming e-mail. It came from Zvi Benyamini, a recent Traders’ Camp graduate who wrote that he was ready to begin shorting. I suggested that he write up his analysis of the stock he wanted to short, using the format we discussed in the Camp. Several minutes later an e-mail came in (
Figure 7.5):