Readers of my Better Spread Betting, Position Trading and Stop Orders books will know that I am predominantly a long trader; and some of you might be wondering why. It’s not for any moral reasons (e.g. “short selling is bad”) but for the following reasons:
- In the long run, stock markets generally rise, but I wouldn’t read too much into this.
- In the long run, long equity positions pay dividends, though not very many at the moment.
- In the current low interest rate environment, the cost of financing a long position is low compared with the potential capital appreciation.
- The price of any financial instrument (and in particular any one of my bombed-out favourites) can rise much farther than it falls; therefore the upside potential is far greater than the downside risk.