Recently, many friends have been asking about short selling stocks, so I decided to organize my understanding here. Short selling Taiwan stocks is actually not as simple as you might think, and the risks are much higher than going long. But if you truly want to learn, this article should help you.

Let’s start with the most straightforward concept: short selling means selling first and buying later to profit from the price difference in between. Simple, right? But in practice, it’s far from easy. Take gold as an example: someone shorts at the $2,000 level, and now it has fallen to $1,873. The $127 difference is the profit. It sounds good, but what if the price moves upward instead? Theoretically, your losses could be unlimited.

The difficulty of short selling Taiwan stocks lies in the many rules and restrictions. If you want to short-sell in Taiwan’s market using stock margin lending, you need to open a margin account and meet conditions such as being at least 20 years old, having the account for at least three months, and completing at least ten trades within one year. But even if you qualify, several real-world issues can still block you: you can’t borrow shares (popular stocks are often borrowed out quickly), you can’t short when the stock is at or below the flat limit (when it’s falling, you can’t chase the short), forced covering (being forced to recognize a loss before shareholders’ meetings), and you also have to pay stock borrowing fees. These rules are really annoying for short-term trading.

Compared with that, opening a futures account is much easier. You only need to be at least 20 years old, and the margin requirement threshold is not high. However, futures come with expiration date constraints. For long-term short positions, you need to roll over, and the costs may be relatively higher. Also, not all stocks have futures contracts.

Personally, I think if you don’t have much capital, want the flexibility to go long and short, or even want to short overseas stocks, Contracts for Difference (CFD) is a simpler choice. The account opening requirement is only that you must be at least 18 years old. After verifying your identity and completing the KYC process, you can trade, and the minimum deposit requirement is low. On some CFD platforms, you only need to click “Sell,” set the quantity and your stop-loss/take-profit, and the system automatically calculates the required margin—simple and straightforward. Plus, there are no issues with borrowing shares, and no expiration date limitations.

Now back to the core question: how do you choose stocks to short? First, look at the overall environment. If the United States is about to cut interest rates, the US dollar is likely to weaken; if Japan ends negative interest rates, the Nikkei index may weaken. These are all good opportunities for short selling. For individual stocks, I recommend looking at US stocks because liquidity is strong, the market is open, and there are plenty of financial instruments.

The logic for stock selection is crucial. It’s not that you should short just because a stock has risen a lot—it’s about judging whether the current price has deviated too far from its intrinsic value. A few signals are worth paying attention to: the stock’s short-term price increase is excessive (pushed up by market sentiment or irrational speculation), the company’s fundamentals are weakening (revenue and net profit decline), or the technical trend breaks down (falling below a support level).

A more practical stock selection technique is to look at revenue data. If a company’s total revenue clearly declines compared with previous years, or even turns to negative growth, it indicates business difficulties. Institutional investors will sell off heavily, so the stock price naturally falls. In addition, you can track where big money is going—be careful with stocks that are continuously overbought. Another important indicator is when the industry has already risen a lot, with a high price-to-earnings ratio; the bullish market may be near its top.

For example, take the US steel industry. In recent years, the US economy’s growth has slowed, steel demand has dropped sharply, and this company’s profits have decreased year by year. From a high of $47 in 2018, it fell all the way to $4.54 in 2021, a decline of more than 100%. In such a clearly bearish environment, if you enter a short position at a relatively high level, the probability of making money is very high.

When you’re trading in real life, there are several principles you must stick to. First, enter at a high level—but “high” here is a relative concept. It doesn’t mean you should short just because a stock has risen; rather, it’s based on fundamental judgment that the current price is already too high. Second, try to focus on short-term trading—day trading short positions is better. Complete the trade within a few hours or a few minutes, and do not hold positions overnight. This helps you get profits quickly and also avoids the risk of a large rebound. Third, you must set stop-loss orders. Short selling is a high-risk operation, so you need to control losses on every trade. Fourth, manage your capital reasonably. Short-selling opportunities are rare. Once you find a high-probability opportunity, allocate the proportion of capital to enter properly.

The most important point: never short based on feelings. Many people see a stock rising a lot and think, “It should fall now.” That’s contrarian trading with a very low win rate. The correct approach is to first confirm that the fundamentals or news are negative, and then wait for a clear technical signal (for example, heavy volume near the top with black candles, or breaking below support) before entering.

After saying all this, the core of short selling Taiwan stocks—or any market—is: having a clear trading logic, strict risk control, and enough patience to wait for opportunities. If you feel the rules are too complicated and the risks exceed what you can tolerate, it’s completely fine to focus on going long or to choose a more stable investment approach. But if you want to try, I recommend practicing with a demo account for two weeks. You can experience what short selling is like without spending money. After you consistently achieve stable profits, then use real money. Remember: short selling is a strategy, not gambling.