Recently, many people have been asking how to make money even when the stock market is falling, and this actually involves the topic of short selling. Many people are interested in short selling but also afraid of it, mainly because they don’t fully understand the logic and risks involved. I’d like to share my understanding of short selling.

Simply put, short selling is selling first and buying later, earning the difference in price. For example, if you predict that a stock’s fundamentals are weakening and its price will fall, you can sell it first, then buy it back at a lower price, and the difference is your profit. Day trading short selling is even more extreme — entering and closing the position on the same day, focusing only on short-term downward moves, without holding overnight.

But I have to be honest, short selling is a highly risky strategy. When a stock hits the daily limit up, there are often no shares available to borrow, and if your judgment is wrong and the stock continues to rise, theoretically, your losses are unlimited. So, I really don’t recommend beginners to start short selling directly.

In Taiwan, there are mainly three ways to short sell. The first is margin trading (融券), which requires opening a margin account, but there are many issues — popular stocks are often hard to borrow, short selling is not allowed below the flat price, and forced buy-ins can occur. The second is futures, which have high leverage but also expiration dates, suitable for experienced traders. The third is Contracts for Difference (CFD), which has the lowest entry barrier, no borrowing issues, and flexible long and short positions. I personally think beginners can start practicing short selling with CFDs.

Choosing the right target for short selling is also crucial. It’s not about shorting just because a stock has gone up; it’s about finding stocks at relatively high levels, with weakening fundamentals, or technical breakdowns. For example, a company with declining revenue for consecutive years, an industry at its peak but with a high P/E ratio, are signals for shorting. Conversely, shorting at low levels is very risky because profit margins are limited but the risk is unlimited.

In actual trading, I recommend a few principles. First, enter at a high point — not just because a stock has risen, but when there are negative fundamental or news factors. Second, focus on short-term trades, quickly taking profits and exiting, which reduces the risk of rebound. Third, always set a stop-loss; short selling without a stop-loss is like gambling. Fourth, don’t short based on feelings — that’s contrarian trading with very low success rates. Fifth, manage your capital strictly; opportunities to short are rare, so when you find a high-probability setup, allocate your funds wisely.

Honestly, short selling isn’t for everyone. If you think the risks are too high, you can focus on long positions or choose more stable investment tools. But if you want to try, I suggest practicing with a demo account for two weeks — you can experience the logic of short selling without risking a penny, and once you achieve consistent profits, then use real funds. Short selling is a trading strategy, not gambling, provided you truly understand the risks and mechanisms involved.