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Secondly, and if you have found a share that you can sell short, you have to make sure that it was on the uptick during its last trade. That means you can only sell short if the share was going up as dictated by the 'uptick rule'.

The uptick rule was introduced by the US Securities and Exchange Commission (SEC) in 1934 to protect investors from volatility. The rule allows short selling only if the price of the last sale (of a stock) was higher than the preceding sale, also known as an uptick. The same uptick rule applies to the Australian stockmarket.

Thirdly, going short will cost you more in terms of brokerage fees because you have to pay a premium to your broker, who in effect is lending you the stock that you are trying to short. And because your broker is giving you an extra service, you are being charged extra for it.

No wonder then that going short or shorting the market is not that popular or widespread compared to going long.

In his essay "A Short History of the Bear", author Edward Chancellor mentioned some of the high profile bears dating as far back as the 17th century. In 1609, a Flemish-born merchant, named Isaac Le Maire, organised a bear raid on the stock of the Dutch East India Company after he had received information from the company's treasurer. Although Le Maire's raid ended in personal failure, it also led the Dutch government to ban all short-selling at the Amsterdam bourse in 1610.

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Justine Pollard, a full time trader said shorting the market using CFDs has several advantages over physical shares.

She said, "The main advantage is that you get paid for going short. If I was to short the physical share the brokerage costs are higher and you have to pay a borrowing fee to short the stock

"When asked about her thoughts on the smaller number of people going short than long, Pollard said, "I think it is a lack of understanding (of going short), as it really is not talked about as much as going long and I find people to be a little scared of shorting."

She added that, "All the students I teach focus on going long first and say, once they build confidence with this they will consider shorting. But they always tell me they can't get their head around how it works as it does not make sense to them."

In terms of her own trading Pollard said, "As I am a full time trader, I need to be able to make money in all kinds of markets. When the market gets bearish I will take short positions rather than sit out of the market and wait. I see shorting as an opportunity to make money during down trends."

"My most decent profit from shorting was earlier in the year during March and April, in which I generated a 12% return on my capital for those two months being net short in the market with CFDs," Pollard said.

Davin Clarke, a long-time trader with a known preference for trading the short side of the market, said his tendency to go short must have been influenced by his trading style.

He said, "I like to trade fast moving volatile stocks for short term profits. In general, I think my trading style allows me to trade any side of the market. I don't feel the need to be on the same side of the market as the majority, which is usually the long side."

"I made some good profits when the market moved almost 200 points down in October. Those times were great for me, good time to make money on the downside of the market."

He added that, "It is difficult to be on the opposite side of the market (short side), but I think it is often the right side of the market. It doesn't mean that just because the majority is going long, they are right. And most of the time if you are just doing what everyone else is doing, you will miss out on some great trading opportunities to make money in the market."

However, Clarke said he trades both the long and short sides of the market.

"Short selling also provides the ability to hedge your portfolio against a catastrophe that could cause a major drop in the market. The aim is to trade the best of the stocks long and the weakest of the stocks short," Clarke said.

Clarke added he finds it easier to make money going short. And why is that? "Because people tend to panic when they see stock prices moving down and this panic selling pushes the price down very quickly. That's why price often moves faster on the way down than on the way up," Clarke said.

Cat Davey, author of the book "Contracts for Difference: Master the Trading Revolution", said the traditional rule for shorting the market is to pick the weakest stock in the weakest sector. For her, another way of finding short opportunities is to watch for underperformers in strongly bullish days.

She said during those times when the XJO (ASX 200) is rallying 30 points and above and there's a particular stock that goes lower without any news surrounding the fall, that stock should be put on a trader's watchlist for short trades.

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He was first mentored and taught by his Japanese employers to trade futures contract using Candlestick charts and Renko. Combining these Eastern trading techniques, he went on to learn some equally powerful Western trading methods like the Elliot Wave Theory and applied them as he traded the world markets from Australia to London and back.

With more than 23 years of trading behind him, Peter Mathers is now back in Sydney and has recently started his Trading Lounge, a trading education and mentoring consultancy.

CMC Markets' CFD Trade Review caught up with Peter Mathers recently to find out his trading strategy and what keeps him going in the markets'.

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Trade Review (TR): How did you get started into trading?

Peter Mathers (PM): Hoei, a Japanese commodity futures trading firm, advertised for trainee traders and I just went in. They had this idea that employing the first six people through the door would be their way of getting the keenest people to train. And they hired me.

TR: Why did you choose trading?

PM: I can't remember now. What I can remember was when I was about 10 years old, I was in a car with my Dad and when we were turning a corner I saw this building and I asked my Dad what that building was. He said it's the stock exchange, and I knew then or I had that feeling inside me that someday I would be working in the stock exchange.

TR: Do you still remember your first trade? How much money did you start with when you started trading?

PM: I can remember my first trade, it was in soy beans. We were only allowed to trade client accounts which were 10k minimum. Being thrown in the deep end was my apprenticeship into the world of commodity futures trading.

TR: What was your education and how did you prepare to become a trader?

PM: My education was at Wesley College in Perth. No Uni for me - the real world awaited, real work, real learning and playing were in mind. I didn't have any formal training or grounding in share trading before I joined Hoei. I think they trained me and the other recruits at that time for about six weeks and we were thrown on the deep end of trading futures.

TR: Can you share some of your experience while working with Hoei & Shoin?

PM: When I moved to Sydney to join Shoin an affiliate of Hoei, my position was in training new brokers in all aspects of trading within the Japanese trading world. The experience I gained in working with the Japanese was on many levels. Their accuracy in trading and their focus in business concepts plus attention to detail are really quite advanced. This gave me a powerful trading edge.

TR: What are some of your outstanding learning points from this company?

PM: Essentially this company fostered my primary way of operating and trading. One of my first valuable lessons was managing my time. Simple as it may sound managing time creates a balanced mind in which positive decisions are created.

Our method of trading was via Japanese candlesticks, charting back in the early 80s, we all hand drew our charts which I still like doing today as it connects me with the market in a subtle way that assists in anticipating market moves.

I was trained in the Japanese markets throughout Japan, essentially in Commodities Futures trading in soft agricultural commodities and base metals. By observing and trading these markets I learned that all markets have their own distinct personalities and players which enabled wise and confident trading decisions.

TR: How did your experience at Hoei & Shoin help you in your trading?

PM: Discipline: I'm very fortunate to have been taught from a Japanese company first up. Their values are more instilled in work practise than in the west. Patience: waiting without waiting, being in control of your own thoughts and emotions. Courage: facing the fear of failure and being able to be cool enough to make sensible decisions even while afraid by staying within the bounds of logic.

TR: Have you always been trading for companies?

PM: No. After my last Sydney appointment with Tradewins, trading through Bell Commodities and after the London based Corporate Services International I then returned to Australia and took time off in the Byron Bay area. I spent just over a year in Byron Bay. At that time I just really wanted to spend time with myself after working for several years overseas, I felt I needed some time off.

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TR: When did you go it alone? Why and how?

PM: By 2004 I wanted to return to Sydney and move back into trading. I started the Trading Lounge, a trading educational mentoring consultancy.

TR: What's your trading strategy and your current trading routine?

PM: Each market is different so I like to stay open to a market's particular requirements. I trade discretionary and fixed model methods, I may even mix and match, that is, entering a position on a discretionary basis and using a fixed model for trade management.

I basically let the market tell me what to do, I also trade long term positions that can be more that a year, right down to intraday trading on a 2-minute or tick chart. I have wheels within wheels operating. My routine is to be up before the morning sun and being prepared waiting for opportunity.

TR: What are some of your memorable winning and losing trades?

PM: When I was 24 I dropped a quarter on options, that loss shook me and taught me to take responsibility for my trading. Nothing that exciting on the winning side, my last trade in BNB from $13 to $20 and I'm still in STO from around $5, so basically I just trade my levels.

TR: What are the most important trading lessons you've learned during your trading life?

PM: Stop loss, protect profit & let it grow.

TR: How do you handle wins and losses in the markets?

PM: I don't over trade, that way nothing bothers me financially or emotionally, I can sleep and go out to lunch.

TR: What's your basic philosophy in life?

PM: I respect all life because the world is round. I enjoy philosophy and spirituality and practice meditation daily. I've been doing meditation since 1986 and I have taught meditation and positive thinking courses (free of charge).

TR: What is your view on education?

PM: I see a real need to share knowledge with other traders, my belief is that a country or company without education is not complete, gaining knowledge and developing skill is the base of being successful.

TR: Who are your role models in your trading and in life in general?

PM: There have been many and there will continue to be many, it seems we are not always ready to learn something new. Information seems to come in the right place and time and life is always a mirror if we are ready to have a look.

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The difficult part for traders was the unloading of long positions. In times of extreme falls on the market like we saw, it is very difficult to tell if the market is going to have such a hostile reaction to share prices. One thing to bear in mind though is that in a strong bull market to which we have been witness, the corrections are going to be quite severe when they occur.

In day to day trading, most people will look for their short positions by finding the stocks that are already trending downward despite the bull market. These probably represent the logical choices to be short in because they are out of favour with the market despite the generally strong upward movement. However, in the case of a market correction, these probably aren't your best choice for a quick short play.

Experience has shown that in times of an abrupt shift of market sentiment, those stocks that have been aggressively bought up will be aggressively sold off. The likely reason, which is probably as much psychological as anything, is that traders are trying to quickly nail down any remaining profits as quickly as they can. As the selling gains momentum they will be more and more desperate to sell as the fear that the falling prices will never stop. High volatility times in the market generate the least rational decisions among traders.

Following is a table which shows the major sectors of the Australian market. The first percentage movement column shows how much the sector moved up or down in the month of October. The second column shows how much the sector fell on the 5th and 6th of October.

The final column shows the variation (var.) between the first series of rankings and the second set of rankings, essentially, the positive percentage rate of change from highest to lowest. The second column of ranking shows the negative rate of change from highest to lowest.

As you can see, the ranking of the sectors between the two columns is extremely similar. Were it not for the relatively large fall of the industrials sector, the correlation on the up and down movement of the sectors would have been almost perfect.

It is impossible to say that this will remain a unified rule of finance but it is certainly something to keep in mind for the next time the market has a major shift in direction that not only will the market fall faster than it has risen, but that the sectors that have risen the fastest will likely be sold off the hardest.

We saw a further cooling of the crude oil price in October. The per barrel price closed out September at USD $66.24 and closed out October at $59.76, a fall of 9.8%

The decline was largely attributed to falling demand for gasoline due to high prices as well as warm conditions in the Northern Hemisphere sapping demand for heating oil. The energy sector in Australia fell by 11.34% over the same period of time.

The S&P/ASX 200 fell 3.91% in October which was the first negative month after five straight months of positive movement averaging 3.11% monthly growth over that time.

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For someone who considers and treats his trading as a hobby, Bidwell is one serious hobbyist. In his more than two decades of trading (though on and off at one point), he has traded almost everything there is to trade: from blue chip stocks to penny dreadful and speculative stocks, from options to SPI to indices. Now he's setting his trading sights to the US and European markets.

About 12 months ago Bidwell discovered contracts for difference (CFDs) and has been actively trading Share and Index CFDs since then.

"I like CFDs. It must be one of the best financial instruments in the market now. I like the liquidity and the fact that I can trade on margin. It also allows me to trade long and short, which is very important if I want to trade both sides of the market," Bidwell said. While he still maintains quite a substantial portfolio of physical shares for his long-term investment, Bidwell said he plans to increase his trading capital for CFD trades. And why not? Since he started trading CFDs Bidwell has seen some substantial rise in his trading capital. "I'm still on a learning curve because I'm predominantly trading Share CFDs now, but I want to do more Index CFD trading. I want to expand my trading into the US and European markets," Bidwell said. As part of his preparation to trade international markets Bidwell said he's started working on a number of systems using various combinations of indicators. For example he's been doing some analysis on retracement figures and swing trading strategies using charts.

While he believes that backtesting a trading system is important for system traders, he admits that he himself tends to have his favourite shares once in a while. At one stage he said he would be monitoring and looking closely at about 50 stocks.

"I found that it is easier to have a few select shares and get to know them better - know the intricacies and trading pattern of each. Instead of monitoring the thousands of shares out there I tend to trade only a handful of them," Bidwell said.

When it comes to his outstanding trades over his 24 years of trading, Bidwell still remembers the tech boom (and eventual tech wreck). One of the stocks he bought when it listed at $2.20 rose to as much as $8.00. He was able to pick up about $10,000 from this position in one day before the price collapsed to 80 cents.

Recalling those speculative trades and others he entered years ago, Bidwell said, "You need a lot of discipline when you're trading. Eventually there will come a time that you will have some 'accidents' - those trades that will really hit you on the hip pocket. So you have to be very disciplined to stick to your money management and trading plan."

However, no matter how stressful trading could be at times, Bidwell said he has learned to be flexible and go with the flow.

"Stress is part of trading. It is part of life. The rules of the games are always changing and we have to change as the market changes. That is life," he said.

CMC Markets, the largest CFD provider in Australia, has won the TechnologyAward for the 2005 Multicultural Marketing Awards for its efforts to provide a multilingual trading platform (Marketmaker®) that incorporates Cantonese and Mandarin language capability.

David Trew, Managing Director of CMC Markets Asia Pacific said, "This award is a fitting recognition of our innovative and world-class trading platform. It also confirms our leadership position in the industry and our efforts to reach non-English speaking communities.

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