Day traders and short selling

My two posts about lower expectancy of sort selling strategy has a reader saying, but this logic does not apply to day traders. Day traders make more money from short selling as stocks go down faster.

Now I have heard this argument before. Lot of it is urban myth. In absence of data on day traders short selling, it is just one persons opinion. There is enough factual data available to show that this myth about day traders and short selling is just a myth. Look at the precipitous drop in day traders during bear market.

The best period for day traders was during bull market. Why did so many day trading firms disappear during the bear markets. Why did the trading volume on all exchanges drop during the bear market.

The simple fact is that it is extremely difficult to trade on short side. The structure of market participants and long term tendencies of the market has lot to do with it. Yes short selling works sometime, but focusing on it exclusively and getting enamored by it is sure recipe for under performance. The discussion is more about how much stress you should put on searching and perfecting your short strategy at the expense of long strategy. Day trading is not my area of specialisation and there are many better blogs focusing on it.

If you are primarily a medium or long term trader then the discussion on short selling might be helpful in putting things in perspective. I find it very fascinating to look at traders seductive addiction to the negative hypothesis crowd ( any bullish strategy is dismissed as cheer leading) while statistics shows very low probability for success for short strategies. But that is what makes trading interesting. People want to trade their hypothesis rather than what will make them money.

Richard Donchian put it nicely:
In a market in which upswings are likely to equal or exceed downswings, heavier position should be taken for the upswings for percentage reasons - a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100%

Ed Seykota has this to say about short selling:
In general, long-term simulations on Trend Following systems tend to show better results on the long side.
This correlates with the observation that volatility is proportional to price, so when you play from the long side you are starting with lower volatility and therefore a better reward / risk possibility.