Trade Lesson: When To NOT Sell Short
This lesson was published by Nick Santiago in August 5th of 2010. The lessons and principles still apply to this very day...
Today, the market indexes have been in a long sideways range inching higher off the intra-day lows. The overall volume is extremely light as the highly followed SPDR S&P 500 ETF (NYSE:SPY) has traded just 103 million shares as of 3:00 pm EST. This could be the lightest volume day in the past three months. However, this does not mean there is a lack of opportunity for profit - as traders, we know better!
As many advanced traders know, during light volume it is a difficult time to sell short the market. Hence the old market adage, "never short a dull market." As a general rule, light volume always favors the upside and the past three trading sessions have proved that. Often many inexperienced traders will try and sell short the market intra-day and find that the indexes can push through resistance levels fairly easily during these light volume periods. This is because there are very few institutional sellers at these levels. Remember, it is the institutions that move the markets not the small investor trading 100 shares. The same goes for most lunch time periods and into holiday weekends. As a trader, you must know and recognize the most optimal times to trade the markets and what side to be on. Whether trading is our job or just a means to supplement your income, take it seriously and do not take on justified risk.