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Trend Trading For Dummies by Barry Burns

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Chapter 9

How to Make Money When the Market Goes Up or Down

In This Chapter

arrow Shorting the market and selling before you buy

arrow Going long with the market and buying before you sell

The most common perception of participating in the markets is to buy into them and hope that they go up.

In your everyday life, you typically buy things before you sell them. Whether you’re buying a car, a house, or any other item, you generally buy it first and then sell it later when you want a new car or home.

Investing works a little differently. In this case, you’re dealing with stocks, mutual funds, and so on. The financial markets allow you to make money whether they’re going up or down because you can buy first and sell later, or you can sell first and buy back later.

In this chapter, I show you how you can make money by trading uptrends or downtrends.

Trend Trading to the Short Side

If you have reasons to believe that a market is going to go down, you can make money by short selling that market. Short selling (also known as going short or shorting the market) means that you’re selling the market first and then attempting to buy it later at a lower price. It’s exactly the same principle of “buy low, sell high,” just in the reverse order — you sell high and then buy low. See Figure 9-1 for an illustration ...

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