What are Weak Shorts?

Weak shorts are investors who short sell a stock (known as being 'short'), but who will buy it back at the first sign of a price increase.

How Do Weak Shorts Work?

Short-term traders typically only enter a short position long enough to capture a quick gain on their investment. Weak shorts don't want to take a loss on their short-term investment, so they will typically set tight stop-loss orders that instruct their brokers to close out their short positions if they lose even a small amount of money.

Why Do Weak Shorts Matter?

Weak shorts piling in and out of a stock can make that stock's price very volatile. Consider: If most of the people selling a stock are weak shorts, when the price increases for any reason at all, the stop-losses that the weak shorts have set will be triggered, causing a rash of buying (i.e. closing out the short positions) and driving the price up very quickly.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.