A Few Things I Learned About Shorting the Stock Market for the First Time
A few weeks ago I tried to short the entire market. It was my first time trying to call a top and it won’t be the last. I thought I had a grasp on the Fed, the price of oil, and the crash of retail. I thought is a very key word here. The market is a monster and does not care. But at least I tried and I am convinced you should not be in markets if you’re not willing to play a little hero ball here and there.
Anyways, the market trampled all over my position and here are a few things I learned from the experience:
You really don’t know the stock market until you’ve tried to go against it
You will never look at the stock market the same once you try to fight its natural trend
It’s painful when you’re long and the market drops or corrects, but it’s even more painful when you’re short and the market continues to rip higher
You are not smarter than the market
Writing your ideas out first and testing them in the public domain is a great way to get feedback
You need to have a grasp on earnings trends
You should know the the prevailing market narratives
You need to have a network of traders, investors or mentors who you can rely on for advice at any moment
Always define your risk before going short
Use options to go short
The market does not care about your position
Never short the hole in a BTFD market
Don’t sell rips in uptrends
Avoid confirmation bias at all costs
Don’t short without knowing, at least to some degree, what your counter party is thinking and why they are taking the other side of the trade
Sometimes the contrarian trade is the popular trade
Not sure how many times I have to learn this, but the market has plans of its own and does not care about politics
Not sure how many times I have to learn this, but the market has plans of its own and does not care about economic indicators
Try to be as honest with yourself and your position as you can
If you have trouble knowing when you’re wrong, you should not be in markets
Review your circle of competence before putting on a trade
You need to preserve your mental capital, don’t let any one trade take you down or stress you out
The best way to preserve your mental capital is to define your risk before going into a trade
Having fun is everything and if you’re managing your position properly, you can still have fun with the market even when it’s going against you
