Short selling or selling stock short is the sale of a security which is not owned by the seller. A short seller borrows stock through a broker so as to sell it on the open market first, with the promise of replacing the stock shares later. The short seller hopes to profit from a decline in prices, so he sells the stock short in hopes of buying it back cheaper at a later time. Short selling is the opposite of going long or buying stock.
Short selling is a common trading method due to the belief that stocks fall faster than they often rise. Short selling allows a trader to profit in a declining market, rather than waiting to buy stock under strong market conditions. Short selling is generally done in a weak market or in a downtrending stock as a stock breaks support, causing prices to fall.
Return to the main chart patterns page to learn more trading terms.