Short Covering

                  

#Termoftheday - Short Covering

Pratik Mehta explains Short Covering happens when Shorts (Sell First Buy Later) that are built anticipating fall in a scrip, are bought back or covered, is called Short Covering. It signifies that the downtrend for the scrip has come to an end and we can see some upside in coming sessions.

Mukesh Gupta further adds a scrip which is in a finite downtrend, short covering is a halt where people who shorted on higher levels starts booking profits, it may or may not a trend reversal, sometimes short covering creates a spike which may give a feel of trend reversal but after a certain point again shorting comes in a push the script on new lows. Short covering usually happens on certain support level where many traders who think that the downfall may stop here so the profit booking.

One needs to understand the difference between short covering and proper trend reversal before going long on spikes between downtrend to avoid getting trapped. For more details read concepts of short buildup, long buildup, short unwinding and long unwinding.

J.K Sobti says my understanding of short covering is that people who have shorted a scrip start buying the scrip in anticipation of an impending price hike for what ever reason.

Anand Priy explains that in derivatives when the sold script are being bought  back aggressively its called  short covering.

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