Question 94—Shorting Stock Market Tops

Answer 2 Selection “Wider stops require larger positions” is incorrect.
When prices are boiling near the top, you can expect high volatility and wide price swings. As a result, stops are hard to place. The wider the stops, the greater your risk per share. As the risk per share increases, the size of the position must be reduced. It is not uncommon to take several stabs at shorting a top before catching a big break. Reducing the size of your position below the maximum dictated by money management rules increases your holding power.

Get The New Sell and Sell Short: How to Take Profits, Cut Losses, and Benefit from Price Declines, Expanded Second Edition now with the O’Reilly learning platform.

O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.