Short selling can be a powerful tool in trading and spread betting, but it comes with unique risks that many traders fail to manage properly. Whether you’re using spread betting, CFDs, options, or direct stock shorting, the same common pitfalls can cause significant losses if not addressed.
If you want to succeed in short selling, avoiding these key mistakes is critical.
1. Mismanaging Position Sizing and Leverage
A major flaw in short-selling strategies is how traders adjust position sizing and leverage at the wrong times:
- When trades go against them, short sellers often increase position sizes and leverage.
- Instead of cutting losses or reassessing the trade, many traders double down, hoping the market will turn.
- This can be disastrous in spread betting, where leverage magnifies losses, especially in markets experiencing unstoppable momentum or short squeezes.
- When trades go in their favor, short sellers reduce position sizes instead of maximizing their edge.
- The sharp, violent downward moves (the “elevator down” effect) often happen quickly.
- If a trader doesn’t fully capitalize on these moments, they miss out on highly profitable opportunities.
This issue applies across all forms of trading, but in spread betting, where positions are leveraged, mistiming your risk exposure can be even more costly.
When things are going poorly, position sizing and gross leverage automatically goes up. In these spots, shorts are stubborn and let it get worse even when the market is clearly in an unstoppable phase.
2. The Psychological Toll – Missing the Turn
Shorting is mentally exhausting because of two major timing errors:
- Missing the early part of the move in your favor.
- Many traders hesitate or enter too late, missing prime shorting opportunities.
- Holding too long and getting caught in a rebound.
- A sharp drop can be followed by a powerful reversal.
- Shorts who overstay their welcome get squeezed, turning a winning trade into a disaster.
The mentally annoying thing about this is that in that you can miss the turn. So, in the first case, you might miss the first part of the move in your favor. And in the second case, when the market finally stops dropping and has a big rebound for a while, you lose a bit more. But ON AVERAGE you will do very well avoiding those human biases.
These mistakes lead to short-term frustration, but over time, discipline in execution improves profitability.
When things are going well, position sizing and gross leverage automatically goes down. In these spots, shorts are often asleep at the wheel and do not add to shorts. In fact, these are often the very highest edge moments. These violent moves down – the elevator down – doesn’t last that long and shorts should try to make these moments really count.
3. The Fatal Short Seller Mistake – Exiting Too Early
- Many traders cover too soon, often closing only a third of the way into a big downward move.
- This dramatically reduces potential profits and makes long-term success in short selling much harder.
- In spread betting, closing too early means missing out on big leveraged gains, which could have made up for multiple smaller losses.
The best short sellers hold their nerve and ride the move down, locking in gains without panicking.
The worst shorts cover everything a third of the way through the violent moves down. This makes it incredibly hard to win at short selling long term.
4. Capital Protection – The #1 Priority
This is a brutal market for most participants, and short sellers must focus on one thing above all:
💡 Managing drawdowns aggressively.
Why? Because:
- Large drawdowns destroy compounding.
- Compounding is the secret to building great wealth and long-term returns.
Whether you’re shorting stocks directly or using spread betting to take short positions, the risk of blowing up your account is real. Protecting capital must come first—no trade is worth ruining your financial future.
Protect your capital at all costs. Large drawdowns are the compounding killer and compounding is the secret to great wealth and returns. Most people won’t tell you this, but for beginners, I would be very cautious getting overly aggressive on shorts for extended periods of time. Short selling can be great at times, but it can also develop some detrimental trading habits. I personally speak from experience.
5. A Warning for New Traders
Many traders won’t tell you this, but short selling is an advanced strategy and dangerous for beginners.
- It’s harder to time correctly than long trades.
- Unlike going long, short positions have unlimited risk.
- Short squeezes can wipe out accounts overnight.
💬 Speaking from experience, I strongly advise caution when shorting, especially in spread betting. While it can be profitable, it can also reinforce bad habits and lead to reckless trading decisions.
Final Thoughts – Winning at Short Selling
Short selling is not just about being right – it’s about timing, discipline, and risk management. The best short sellers:
✅ Know when to scale in and out of trades effectively.
✅ Avoid emotional decisions and psychological biases.
✅ Prioritize capital protection and compounding for long-term gains.
If you’re shorting via spread betting, CFDs, options, or direct stock trading, the same principles apply:
Focus on execution, risk management, and emotional control.
📈 Master these, and you’ll thrive. Ignore them, and the market will punish you. 🔥
