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3 Reasons why you should never miss taking a short trade in market.
Most of the trading indicators do have long and short signals and short are the ones which can be amplified to the favour if used correctly.
There is a 70% probability that you don’t. Most of the investors are sceptical to take a short trade in the market and a ‘long only’ strategy is generally adopted. Most of the trading indicators do have long and short signals and short are the ones which can be amplified to the favour if used correctly.
Most of the corrections; be it a bull market correction or a new breakdown in the market, is steep. Had you missed the rally of 3700 points from September 05 to December 07 (2 years 4 months) a similar return could had been generated by participating in the fall post that within 9 months. This phenomenon mostly holds good even with corrections with a shorter time frame like daily or weekly.
With the market moving up, usually massive long positions are created specially with leveraging and a slight change in the equation of demand and supply leads to a chained reaction collapsing the prices with a drift. Stop losses triggers further stop losses of other investors and it leads to margin calls by broking houses for leveraged positions.
Option is an instrument which is constructed not just with the component of the underlying but also with lots of other factors, one of them is Theta (Time value). If an investor has a 300 points upside forecast on Nifty which is expected to materialize in 3-4 months, trading a call option might not either be feasible or may not yield a high reward to risk because of the Theta decay which will overrule the gains of the underlying. You might have to roll the position to next expiry leading to not so encouraging returns. In these situations the beauty of single option as an instrument of low risk and high reward has to mandatorily convert into complexity by adding multiple legs to it, to be able to save on theta decay.
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