Jesse Livermore

Five Reasons to think Twice Before Shorting Stocks

Jesse Livermore, one of the greatest stock traders in history, made his biggest market killings when he shorted stocks.

In particular, he made $100 million (worth more than $1 billion in today’s money) when he shorted the market in 1929.

Non-expert traders should be reluctant to short stocks though, without very great cause.

Here are some reasons why short trades are riskier than long trades:

Why you should think Twice Before Shorting

  1. When a long goes against you, your position size falls. When a short goes against you, your position size rises, increasing your risk.
  2. A rising stock market serves the interests of society’s most influential people – business owners and governments. They will lobby and legislate for conditions in which businesses and wealth creation can prosper. Notice how central banks cut interest rates when economic conditions take a downward turn.
  3. Business owners and managers work hard to make their businesses succeed. Their desire to increase their profits usually results in rising stock prices.
  4. The long-term charts of the Dow, S&P500 and the NASDAQ reflect points 2. and 3. The long-term direction is upward. When you short, you go against the natural, long-term market trend.
  5. Long positions can result in 100% loss of your stake. Short positions can lose you an unlimited amount.

Every serious trader should have shorting as a stock trading tactic – but it’s a tactic that requires greater caution than going long.

Advertisements

Pages

  • Home
  • Start Trading
  • Bucket Shop Trading
  • Stockbroker Woes
  • Price Patterns
  • Suckers and Lessons
  • The Complete Trader
  • Beating the Market
  • Stocks or Commodities?
  • Training a Stock Trader
  • Stock Trading Rules
  • Trading Errors
  • Speculation
  • Fundamental Analysis
  • Learning Stock Trading
  • Understanding Stock Trading
  • Average Down or Not?
  • Stock Timing
  • Market Manipulation
  • Trading Signals
  • Trading vs Investing
  • How Rich Was Livermore?
  • Losing Money
  • Career Timeline

From the Livermore Blog

  • The Stock Market Sucker Test
  • Gut Feel For Pigs - Counter Intuitive Examples
  • Accurate Stock Picks vs Precise Stock Picks
  • Five Reasons to Think Twice Before Shorting Stocks
  • Pyramiding, Locking in Profits, or Enjoying the Ride
  • Stock Trading - Wait for the Reason and Miss the Opportunity
  • Stock Market Ripples and Trading Tactics
  • Practice, Luck and Mistakes in Trading
  • Why Continue Holding Overvalued Stocks?
  • Why Continue Holding Overvalued Stocks?
  • List

Return to top of page

Jesse Livermore - Privacy - © 2025