Recently I have been reading a book called Market Wizards. The author talked about his own experience:

"I had done a very detailed analysis of the cotton market throughout the entire post- World War П period. I discovered that because of a variety of government support programs, only two seasons since 1953 could truly be termed free markets [markets in which prices were determined by supply and demand rather than the prevailing government program]. I correctly concluded that only these two seasons could be used in forecasting prices. Unfortunately, I failed to reach the more significant conclusion that existing data were insufficient to permit a meaningful market analysis. Based on a comparison with these two seasons, I inferred that cotton prices, which were then trading at 25 cents per pound, would move higher, but peak around 32-33 cents.The initial part of the forecast proved correct as cotton prices edged higher over a period of months. Then the advance accelerated and cotton jumped from 28 to 31 cents in a single week. This latest rally was attributed to some news I considered rather unimportant. "Close enough to my projected top," I thought, and I decided to go short. Thereafter, the market moved slightly higher and then quickly broke back to the 29-cent level. This seemed perfectly natural to me, as I expected markets to conform to my analysis. My profits and elation were short-lived, however, as cotton prices soon rebounded to new highs and then moved unrelentingly higher: 32 cents, 33 cents, 34 cents, 35 cents. Finally, with my account equity wiped out, I was forced to liquidate the position ......"

My question is why the author's account equity was wiped out. In my opinion, he went short with a price higher than 25 cents per pound, which means he earned money, no matter how high the price moved afterwards.

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    To clarify the author's situation, he didn't buy at 25 cents. He shorted (sold borrowed shares) at 31 cents, expecting it to go down, but it went up instead. – Ben Miller - Remember Monica Jan 17 '17 at 8:16

He sold at 25 cents per pound and then as the price rises, the cash he has will buy less and less which could trigger a margin call as you are missing the "short" part of his position which is rather important here. From Investopedia:

A margin account also allows your brokerage firm to liquidate your position if the likelihood that you will return what you've borrowed diminishes. This is part of the agreement that is signed when the margin account is created. From the broker's perspective, this increases the likelihood that you will return the shares before losses become too large and you become unable to return the shares.

If you sold at 25 cents per pound and the price goes up, at some point you may be forced to buy to cover the position as brokers don't like to lose their money. As another example of a short going bad, "Devastated" Trader Crushed By Soaring Biotech, Starts Online Begging Campaign To Fund $106,000 Margin Call notes in part:

However where this story gets abusrdly entertaining, or woefully tragic, depending on one's perspective, is that one trader, Joe Campbell, was on the wrong side of last night's massive surge. As the RutRho blog, which noticed it first explains, a "dummy" E-trader, Joe Campbell, decided to go $35,000 short KBIO "and now owes $ETFC a wonderful $106K."

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