Be A Successful Short Seller

I talk all the time about stocks… in my webinars, in my Premarket Prep, in my Daily Double Down….everywhere. 

And I talk specifically about buying stocks.

But what about taking the other side of the trade?

I’m talking about shorting stocks. 

I don’t often discuss short selling unless it involves taking advantage of short squeezes, which is still about buying stocks.

And by the way, if you are interested in the short squeeze play and don’t know much about it, read my article here. 

Every Thursday evening, I publish a Weekly Squeeze Report that goes to my subscribers.

It alerts them to a stock I’ve been watching that I think is in for a big short squeeze the next day.

The report includes specifics: Stock name and ticker; entry price; target price; stop loss level; and a detailed analysis of my rationale for choosing the stock…Exactly what traders need to get in and capitalize on a short squeeze. 

Wanna get in on the action? 

Subscribe to my Daily Income Trader system.

With it, you’ll get access to my Weekly Squeeze Report, five daily webinars, our BreakingNews Chat service, our proprietary trading tools, and much more.

But back to short selling…

This can be a very profitable trading strategy to add to your existing plan, but you need to understand it thoroughly before starting.

Short selling can be a powerful strategy in your trading arsenal, but it takes some intestinal fortitude.

It involves risks and rewards that every trader should understand before diving in. 

What does it mean to short a stock?

When you short or short sell, you’re basically betting that a stock’s price will go down. 

Unlike traditional investing, where you buy low and sell high, short selling involves selling high and then buying low. 

Here are the steps involved:

1. Borrow Shares: First, you borrow shares of a stock from a broker.
2. Sell the Shares: You sell the borrowed shares at the current market price.
3. Buy Back (Cover) the Shares: Later, you buy back the same number of shares at a lower price.
4. Return the Shares: Finally, you return the shares to the broker and pocket the difference.

Here’s a theoretical example:

Let’s say you believe Company XYZ is overvalued at $50 per share. You borrow 100 shares and sell them, pocketing $5,000. A few weeks later, XYZ’s price drops to $30. You buy back the 100 shares for $3,000, return them to the broker, and pocket the $2,000 difference (minus any fees and interest).

Why would you want to short stocks?

Shorting can be a valuable tool in your trading strategy for several reasons:

You can profit in bear markets: When markets are falling, short selling allows you to make money on the decline.

You can hedge against your long positions: You can use shorts to offset potential losses from your other stocks. This is particularly useful during market downturns.

You can take advantage of overvalued stocks: If you identify a stock that’s overvalued or likely to drop due to poor fundamentals, you can short it based on that information.

Short selling can be very profitable but you must understand the risks.

Your losses are pretty much unlimited: Unlike buying, or taking a long position in a stock, where the maximum loss is your initial investment, short selling has theoretically unlimited losses because a stock’s price can keep rising.

You can be subject to margin calls: If the stock price rises significantly, your broker may require additional funds to maintain the position. If you don’t meet a margin call, your broker has the right to liquidate your position.

You need to time the market exactly right: Shorting requires precise timing. Market sentiment can be unpredictable, and even fundamentally weak stocks can experience short-term rallies.

Here are my key strategies for short selling:

Do your research and use both fundamental and technical analysis.

Thorough research is crucial. Look at the company’s financials, industry trends, and overall market conditions. Use technical analysis to identify overbought conditions or resistance levels.

Read my recent blog post on fundamental analysis for more information.

Set stop-loss orders.

Protect yourself on the downside by setting stop-loss orders to close your position automatically if the stock moves against you.

Use trailing stops.

Trailing stops will adjust your stop-loss level as the stock price moves in your favor. This way you can lock in profits while still protecting yourself from a sudden reversal.

Keep an eye on the stock’s short interest amount.

Short interest is the percentage of a company’s shares that have been sold short. High short interest can signal the potential for a short squeeze. This happens when a rising stock price forces short sellers to cover their positions, driving the price up further.

Now to the fun part…

Oracle, our proprietary algorithmic trading tool, sends us long stock winners every day,

But did you know that it delivers big gainers on the short side too?

If you don’t know how Oracle works, I’ll first tell you this…It’s the tool I truly believe I could not trade without.

Oracle’s algorithm scans the entire stock market every single morning for price patterns and trends that it believes are indicative of big wins that day.

It then generates a list of its top picks for the day along with trading direction, green for long or red for short, and an entry price.

Here are some real-world examples of short winners that wouldn’t have been on our radars without Oracle…

Back in May, Oracle sent us the red signal on Siyata Mobile Inc. (NASDAQ: SYTA) with an entry price of $3.72 per share. After hitting the signal, SYTA tumbled to $2.12.

For those that shorted the stock at $3.72 and rode it down to the bottom, they profited by 43.01%.

And then again in May, we got the short signal for Faraday Future Intelligent Electric Inc. (NASDAQ: FFIE) at $0.76 per share. 

After FFIE hit the signal, it fell to a low of $0.3906 for a return of 48.61%.

And then in June, there was the short play on Aerovate Therapeutics Inc. (NASDAQ: AVTE)…

And here’s just one more that happened just last week with CNS Pharmaceuticals Inc. (NASDAQ: CNSP)…

I could keep going but we’d be here all day. There are so many short winners that came from our Oracle system.

Want to learn more about Oracle? Tune in tonight to my free live training webinar at 9 pm Eastern, where I’ll tell you everything you need to know about my secret trading weapon.

My final thoughts…

Short selling can be a powerful strategy that makes you a lot of money, but it’s not without its challenges and risks. 

To be a successful short trader, you need to understand the mechanics, stay informed, and use disciplined risk management.

You’ll also need a great trading platform, one that includes technical indicators, news sources, and stock screening capabilities…

And especially for short sellers just starting out, you’ll want a platform you can use to paper trade. Paper trading lets you practice as much as possible before going live with real money.

My top pick is StocksToTrade and it has every one of those things. 

If you’re interested in trying it out, sign up for a 14-day StocksToTrade trial today — it’s only $7! 

Have a great day everyone. See you back here tomorrow. 

 

Tim Bohen

Lead Trainer, StocksToTrade