Best Stocks To Go Long and Short And Where to Trade Them
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Most retail investors still approach the stock market the same way: buy a company that looks promising and wait for the price to rise. And look, this does work during strong bull markets. But outside those periods? It's a limited strategy, to say the least.
Professional traders rarely think that way. Don't get us wrong, they do hold companies they believe will
outperform, but at the same time, they bet against firms that look overpriced, overhyped, or structurally
weak.
That’s the logic behind long/short investing. The strategy doesn’t depend entirely on the market going up. Instead,
you’re trying to capture the gap between strong businesses and fragile ones.
The tricky part isn’t understanding the concept. It’s identifying which stocks belong on each side of the trade, and knowing how to execute those positions efficiently once you do.
The tricky part isn’t understanding the concept. It’s identifying which stocks belong on each side of the trade, and knowing how to execute those positions efficiently once you do.
What Makes a Stock a Strong Long Candidate
Three characteristics tend to show up repeatedly in long positions.
Structural growth
That's precisely why firms like NVIDIA and Microsoft keep appearing in institutional portfolios. Their products
power core digital infrastructure used across the global economy.
Reuters' report confirms this (and so does common sense). Large technology companies like Alphabet, Microsoft, and
Meta remain among the most widely held positions in hedge
funds simply because demand for AI infrastructure keeps expanding.
If this all sounds more than obvious, good. But you'd be surprised at how many beginner investors bet on a
promising brand and "uniqueness," while ignoring the reality, so it's worth repeating. However, growth alone isn't
enough, which is why you need to take into consideration two other factors.
Reliable cash flow
Potential for growth is a must, but serious investors also want businesses that can actually convert revenue into
predictable profits. Predictability is the keyword here.
So, which companies check that box? Payment networks, enterprise
software providers, and subscription-based platforms, among others. Their income streams remain relatively
stable even during slower economic periods.
Predictability is what makes valuation easier. Markets reward that consistency.
Market leadership
Let's take Apple as an example here, as they consistently dominate the premium smartphone segment, years after
competitors tried to challenge it. They're the leaders in the premium smartphone segment even now, years after
competitors tried to challenge it. This is all tied to the ecosystem advantages this giant offers, but brand loyalty
plays an important role, too. These things create barriers that smaller rivals struggle to overcome.
Serious investors recognize those advantages. They recognize them and keep allocating capital accordingly. That's
the winning strategy for successful long-term investment.
What Signals a Potential Short Opportunity
Several warning signs show up frequently.
Valuations running ahead of fundamentals
This said, high valuation alone doesn’t guarantee a price drop. What it does is increase the risk of sharp
pullbacks.
Business models under pressure
Legacy companies losing market share, startups burning through capital, or firms struggling to adapt to
technological change tend to attract bearish attention. Short sellers monitor these changes carefully.
Narrative-driven trading
For example, financial market data has occasionally shown NVIDIA
carrying one of the largest short positions by dollar value. This doesn’t necessarily mean traders are betting
against the company outright; large funds often use short positions in liquid stocks like NVIDIA to hedge broader
technology exposure.
That’s another reason heavily traded technology stocks often see activity from both sides of the market.
How Traders Actually Execute Long and Short Stock Positions
Traditional brokerages allow short selling through margin accounts, but the process often involves borrowing shares
and dealing with availability restrictions. So, many traders instead look at derivative instruments.
Share CFDs track the price of an underlying stock without requiring you to own the shares themselves. What you do
is simply speculate on whether the price will rise or fall, and your profit or loss reflects the difference between
the opening and closing price.
It's a setup that simplifies long and short trading considerably. You can open positions in either direction based
on your outlook for a company.
The next step is figuring out where to trade them. Traders typically look for
platforms that provide access to global equities through stock CFDs. Axi, regulated by ASIC, FCA and other
bodies, offers access to 100+ stock CFDs across the US, UK, and European markets. You can speculate on
price movements without owning the underlying shares.
Flexibility is arguably the number one reason active traders gravitate toward derivative platforms rather than
traditional stock accounts. No logistical friction associated with traditional short selling, yet the opportunity to
apply long/short strategies across a variety of sectors, including technology, automotive, and consumer brands.
A Practical Framework Before Entering a Long or Short Trade
Long candidates tend to show:
● Accelerating revenue growth
● Expanding industry demand
● Steady institutional accumulation
Short candidates often display:
● Valuations disconnected from earnings potential
● Weakening fundamentals
● Speculative investor enthusiasm
When these signals appear at the same time (strong industry leaders versus overhyped competitors), you have the
ideal situation for a long/short trade.
Common Mistakes in Long/Short Trading
Crowded trades
Ignoring macroeconomic factors
So, don't ignore the macro environment; it can undermine otherwise logical trades.
Treating short selling like long investing
Risk management becomes far more important on the short side.
Refining the Strategy: Hedging and Costs
What do we mean by this? Let's take a practical example because this is often the best way to illustrate a point:
long NVIDIA / Short Intel. If the whole chip sector crashes, the Short Intel position gains value and offsets the
losses on NVIDIA.
This "relative value" is also known as "pair trading." Instead of just picking a stock to fall, you go long on the
sector leader (like NVIDIA) and short a struggling competitor (like Intel). This protects you if the entire market
drops, as your short gain offsets your long loss.
However, remember that "shorting" isn't free. When using CFDs, you will encounter swap rates, which are small fees
for holding positions overnight. Additionally, because shorting carries unlimited risk if a stock moons, always use
stop-loss orders. This automated exit is your primary defense against the "crowded trades" mentioned earlier,
ensuring a single spike doesn't wipe out your account.
Author bio: Daniela Kovac is a markets analyst and independent trading systems researcher with years of experience studying retail and proprietary trading models. Her work focuses on risk management frameworks, capital allocation structures, and the psychology of performance under constraints.
