Did you know you can make money when prices fall?

Since the beginning of 2022, the S&P 500 index?is down nearly 21% so we are officially in a bear market. This sliding trend is being intensified by global uncertainty and rising inflation.

Historically, bear markets are great opportunities to build wealth: you either buy assets at a lower price expecting their value to increase on a medium/long term; or you speculate on sinking price movements in a short term.?

I guess the idea common people have about the business is that in trading you buy an asset today to sell it at a higher price tomorrow.?Such deals are called long positions. But the truth is that you can also earn money with market reversals. I confess that was one of the most difficult things for me to understand... you can effectively earn money as prices fall. This is called short selling.

In short-selling the transaction is based on the belief that the price of a certain asset is overvalued and therefore will drop.

This idea seemed so bizarre to me that for months I only opened long positions. Nowadays, my profitability as a trader is coming essentially from short positions since the markets where I invest in are predominantly in a massive tumbling trend.

Let me see if I can explain short trades in a simple way:?you borrow an asset from your broker and sell it on the market at the current market price (which you think will fall). If your analysis was correct and the price effectively drops you buy that asset at a lower price and pay back to the broker.?Since the price your borrowed is higher than the price you bought you make a profit from the difference.

I will give you an EXAMPLE to better clarify this mechanism:

-???????Last week, on July 31st?I invested $500 in COPPER. The market price at time was $3,713 and I defined a take profit price of $3,60. This means I was expecting the price to devaluate 3%.?

-???????My goal was to make a profit within 24 hours, before the weekend.

-???????On the next day, July 1st, COPPER reached $3,60 and I made a 30% profit because I used a 10:1 leverage.?I earned $152,17 on this trade.

-???????Today, at time of writing, COPPER price is $3,58 so I could potentially have earned more money if I kept the trade going. The thing is I never leave a position open during the weekend since unexpected events can reverse dramatically existing market trends.?

-???????My stop loss price for this deal was $3,768, equivalent to a 1,5% price fluctuation. Normally my risk management ratio is at least 2:1 meaning the profit I expect to make is 2 times higher than the loss I am willing to undertake. Obviously, I am stopped out from deals as prices move up and down, but with such ratio I assure my monthly balance is positive so I can make a living out of trading.

When you use a trading platform the only thing you need to know is if you want to make a buy (long position) or a sell (short position).

Normally, on short positions commissions are higher since you pay an interest over the value you borrowed.

This speculative approach has a higher inherent risk and you should only risk your money in short positions as you acquire more experience and consolidate your knowledge on technical analysis.

It took me a time to open my first short position and even more time to feel comfortable with such trades. Now I find them to be “business as usual”.