Aaron
Lynch

Wondering who the Gribbles Group is? Probably doesn’t ring any bells. What about short selling? Well keep on reading then.

The Gribbles Group is listed on the approved securities list by the ASX. This means it can be short sold. It is also has the highest % of shorted stock on the list of 169 equities approved by the ASX for this type of trading!

Short selling is a highly valuable trading skill and traders can take advantage of a falling market in a number of ways. Lets take it back to basics though, what is short selling?

If we believe that a particular share is going to fall in price (can anyone out there send me through an example of a falling stock in the last few months) we can take advantage of this by entering the trade with a sell order first and exit the trade with a buy order at a later stage. Sounds simple. The principle of short selling is.

In most business activities in life we want to buy at a low price and sell high to make a profit. This principle does not change with short selling, we sell high and buy back at a date in the future. If the share has fallen in price we have profited.

Before we look at the Gribbles Group as an example, there are a few points we need to note. Not all shares can be short sold. The complete list is available from the ASX website and is updated daily at www.asx.com.au/data/Shortsell.txt

Its also important to note that only a maximum of 10 % of the shares on issue can be short sold at any time, that’s why looking at the link above is very important.

The last point I would make is that not all brokers will short sell, so I would recommend that you talk to your advisor to understand if they can provide this service and provide information on matters like settlement periods, brokerage costs etc.

So let’s look at the Gribbles Group and see what all the fuss about short selling is.

We can see from the chart that the Gribbles Group has been in a serious downtrend since early 2001, from $1.32 to a current price of around $0.50. I have also included the Health Care sector, as a line chart. As Tom mentioned in last weeks article, the Health Care sector is still looking weak, so there may be further opportunity for shorting.

It is not my purpose in this article to analyse a particular trading entry or exit as we all know there are many ways traders engage the market, though if we have a system that can confirm that a share is falling as well as rising we can now participate as long as we can short sell that share.

This trading tool of “shorting” is sometimes overlooked as people say, “I couldn’t do that”. We have been programmed from such a young age that we can only sell things we already own. If we are trading the markets generally, do we really lose sleep over what we own as long as it is profitable. Short selling is no different if I think I can make a dollar by short selling and my trading system indicates that it is a valid trade, my psychology does not hold me back. I want to profit in all market situations. A falling market is a fact of trading and the last 12 months is testimony to that and would have taught many traders some valuable lessons.

Has the broad bear market finished, I certainly think not. So I am presented with a choice, if I do not know how to short sell I can continue to look for shares that are going up, and trade them. Or I can sit on the sideline and do nothing, not a lot of profit in that. Or I can start the wheels turning on my education in short selling and then I am on the road to being a more complete trader and one that can make money in markets going up or down.

Which would you prefer to be??

Good Trading

Aaron Lynch