If you have a robust technical system that works well for you trading long in bullish stocks, then there's no reason why the mirror image of that system can't be used to trade short in bearish stocks.
Example.....
One of the simplest and most effective systems for trading long is to find a strongly uptrending stock, wait for it to pull back temporarily, then buy it as the pullback finishes and the uptrend resumes.
For short traders, the mirror image of the above would be to find a strongly downtrending stock, wait for it to rally briefly, then sell it short when the rally ends and the downtrend resumes.
Once in the trade, you can stick with it as long as the downtrend continues. Or you can adopt a shorter term swing trading strategy of exiting the trade at the first sign that the next temporary rally is beginning.
In other words, you trade the swings.
Either way, trail you stop to lock in profits are they accumulate.
When trading the short side you need to be aware of the potential for massive losses.
You trade long, the company goes broke, the most you can lose is 100% of your investment.
With short trading you can lose much more than 100%.....your losses are potentially unlimited.
However, the simple solution to this problem is to use stop losses. That way, you choose the maximum amount you're prepared to lose BEFORE you enter the trade.
For a stop loss to work effectively, there has to be plenty of willing buyers when you want to sell, and plenty of sellers when you want to buy.
One of the absolute essentials of trading short is that the stock MUST have plenty of liquidity, otherwise you can really get hammered when there's not enough traders to do business with you at your stop price.
I don't consider dividends to be much of a problem with short selling. If the stock in which you're holding a short position pays a dividend, the amount of the dividend is debited to your account. But the stock is at the same time likely to drop by the approximate value of the dividend, meaning that its moved further in your favour.
The obvious trading instrument for shorts is CFD's. CFD's allow you to go short as easily as long - no need to make special arrangements with your broker. Guaranteed stop losses are available with some brokers - they guarantee that you'll get your exact stop price, even if the price action jumps over your stop as a result of an overnight gap or whatever.
CFD brokers pay you interest on short positions, but charge you interest on long positions.
Needles to say, thay pay you a lesser rate on shorts than they charge you on longs. Nevertheless, the interest you're paid on shorts goes some way towards compensating for the interest you're charged on longs.
The best shorting candidates are strongly bearish stocks in strongly bearish sectors when the overall market is strongly bearish.
If the overall market is flat, then usually you can find at least one sector that's heading south - this sector will contain many stocks suitable for selling short.
Since stocks and markets generally fall much faster than they rise, selling short a stock has the potential to create faster profits than going long. These profits can sometimes be substantial, due to the steepness and extent of the fall when bad news and/or fear sets in and people start scrambling to quit their longs.
Holding some shorts in bearish stocks can be an effective insurance policy to use in conjunction with your long positions. In a sudden market slump caused by a terrorist attack or whatever, those holding long positions will be hurting, while those holding short positions will be smiling.
Every serious trader should make it his or her business to learn how to go short. If you don't, you'll be missing out on a smorgasboard of profitable trading opportunities when a market or sector starts heading south.
I use IG Markets to trade both long and short in CFD's on the largest 1000 stocks in the USA.
Bunyip