How do I find shares for short sale?
How do I find shares for short sale?

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After all, the process of determining which stocks to short requires an understanding of both technical and fundamental analysis. As you may know, it can take many months to get there. To clear the fog, we've listed below a few things you can do when short selling.

Basic Research

This is by far the easiest way to profit from short sales. In most cases, all it takes is a little common sense and urgency. Simply put, fundamental research is the process of evaluating how a relevant news story may affect the value of a stock. After all, stock prices move up and down depending on supply and demand. That demand and supply is driven - or is expected to be driven - by the performance of the stock in question.

For example, let's say Amazon releases its quarterly results - which are far better than expected. How do you think the markets will react? You can almost be sure that this will encourage investors to buy Amazon stock on the news, forcing the stock price higher.

On the other end of the spectrum, let's say Inovio Pharmaceuticals announces that its latest COV-19 vaccine trial has been suspended by the FDA. It goes without saying that this will panic shareholders and thus - likely lead to a sell-off. As a result, this would be a great opportunity to enter a sell order on the stock! However, you need to be quick to maximize your potential profit.

Look for overvalued stocks

Usually, smart investors will look for undervalued stocks to invest at a discount in exness forex. However, as a short seller, you need to do the opposite. That is, you need to find a stock that may be overvalued. If you can, you can take a short position this way to profit from the stock's inflated price.

But how do you do that? One of the best ways for newbies to assess whether a stock is overvalued or undervalued is to use an accounting ratio. The primary focus here is the P / E ratio.

P / E ratio

The price / earnings ratio (P / E) compares the company's current share price with its earnings per share. To get the latter, you need to divide the total number of shares outstanding into the company's latest annual earnings.

Once you have the earnings per share, you need to divide it into the current stock price. This will give you a ratio. Now you need to compare this ratio to the industry average.

Let's say you are looking at GlaxoSmithKline stock. If the P/E ratio is 17, but the industry average for pharmaceutical stocks is 12, it may be overvalued and therefore a good opportunity to sell short!

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Relative Strength Index

The Relative Strength Index (RSI) is an extremely popular technical indicator used by almost all short sellers. This is because the indicator can potentially tell you when a stock is overbought or oversold. If it is the former, the RSI would indicate that a short-term correction may be in the works.

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