Yesterday, you got the answers to eight of the most common questions I receive about penny stocks.

One of those questions was: “How do you make money when stocks go down?” To which I answered: Shorting the stock.

Let's talk about that a little more…

Short selling is an investing strategy. You borrow shares of stock from your broker and sell them for a profit. If you want to speculate that a stock's price will drop, taking a short position can be profitable. There are distinct patterns that identify these opportunities.

Let me show you how you can turn them into profits. Betting against worthless or near-worthless companies has made me a lot of money. I want to share that insight with you.

Here is the six step process you need to know.

Step #1: Identify the Stock You Want to Short

Start by identifying a stock that you believe will decline in price. That enables you to buy it back at a lower price. This is what earns you profit.

To do this, you have to learn the patterns that indicate when a stock is failing. We'll cover those patterns in another issue.

For now, just learn the basic concepts. For example, be sure to approach short selling with diligence and a familiarity with the risks involved.

Another basic you should understand is shorting is 100% legal. Not everyone knows that. Also, understand that you're not going to win every time you short. No one wins every time.

But, the more preparation you do, the more practice you get, and the more diligent you are in monitoring your shorted stocks, the better you will do.

Allright, so after you've I.D.'d the stock you think will fall…

Step #2: You Borrow the Stock

To short a stock, you need to sell a stock you do not own. How can you sell something you don't own?

Let's look at an example.

Say you want to bet against 1,000 shares of a penny stock. You'd need to go to a broker and ask him to loan you 1,000 shares when they have shares available to short. You'll want to compile a list of go-to brokers who always have shares to short. Many brokers lack the tools to short sell penny stocks.