Get excited! We have so many trade opportunities at our fingertips every day…
And it just keeps getting better and better.
I’m not just talking about long trades either. Short selling is on the table too.
And remember, our Oracle system is great for shorting.
Check out my blog post to see how it works.
Shorting stocks can be one of the most profitable trading strategies—when done right.
Unfortunately, many traders get crushed when they try to do it.
Why?
Because they let hype dictate their trades instead of real price action.
It’s easy to see a stock running on what seems like flimsy news and assume, “This thing is way overvalued. It has to drop.”
But markets don’t care about what makes sense and what doesn’t.
Stocks can stay overextended way longer than you expect—and if you short too early, you’ll end up squeezed and in a panic.
So, let’s talk about how to short stocks the right way by focusing on price action, not hype.
Why Short Sellers Get Wrecked
Shorting is a much different beast than going long.
When you buy a stock, the most you can lose is 100% of your investment (if it goes to zero). But when you short, your downside is unlimited…
Imagine if the stock just keeps climbing and climbing and climbing for what seems like forever?
That’s bad news for a short seller.
Here’s why most traders fail at shorting:
Shorting Too Early:
A stock starts running, and you think there’s no way it can go any higher…So you short it.
Then, it keeps going.
And going.
Next thing you know, you’re in a short squeeze and forced to cover your position.
This happens all the time, especially with low-float runners and stocks in hot sectors.
Ignoring the Strength of the Trend:
I say this all the time to my Daily Income Trader and StocksToTrade Advisory members: “Price action tells you everything you need to know.”
If a stock is making higher highs, it’s in an uptrend. Period.
Yet traders will fight the trend just because they think a stock is “overvalued” or “running on BS news.”
Again, the market doesn’t care about what you believe…
The price action dictates what will happen next.
As long as the trend is strong, shorting is like stepping in front of a freight train.
Forgetting That Hype Can Keep Stocks Elevated:
Stocks can trade on hype alone for weeks or even months.
Look at meme stocks like Gamestop Corp (NYSE: GME) and AMC Entertainment Holdings (NYSE: AMC) in 2021.
These stocks ran far beyond what made “fundamental sense” because retail traders and institutions kept buying in.
How to Short Stocks the Right Way
Wait for Confirmation—Don’t Try to Predict the Top:
The best short setups happen when the stock shows weakness first. That means:
- Failed breakouts (where the stock tries to push higher but gets rejected)
- Heavy selling volume coming in after a big run
If a stock is still making new highs with strong volume, shorting is a bad idea, no matter how ridiculous the move seems.
Look for Exhaustion Moves:
A great short setup comes after a stock makes a huge, parabolic move, then immediately fails.
Signs of an exhaustion move include:
- A massive spike on crazy volume
- A reversal candle
- A stock giving back most of its gains quickly
When this happens, it tells you buyers are running out of steam, and the stock is finally ready to drop.
Use Key Resistance Levels:
Stocks tend to top out near key resistance levels. These could be:
- Previous multi-month highs
- A whole number level (like $10, $50, or $100)
- A major moving average (like the 200-day MA)
If a stock struggles to break through a major resistance level and starts showing weakness, that’s your signal that momentum is shifting in favor of a short trade.
Time Your Entries Based on Volume:
You want to see:
- A big surge in volume followed by declining buying interest
- Heavy selling volume coming in after a failed breakout
- A shift where buyers are getting trapped, and sellers are taking control
This tells you that the momentum is shifting, which is exactly what you need for a high-probability short setup.
Use Stop Losses and Risk Management:
Respect the risk!
When you short, you’re betting against momentum, which means you need to be extra cautious.
- Always set a hard stop loss
- If a stock doesn’t break down quickly, get out…strong stocks tend to bounce back fast
If you can’t stick to a risk plan, you shouldn’t be shorting.
Use the Right Tools:
To be able to monitor the price action and the technical indicators of a short trade, you need a robust platform.
It should feature real-time data, charting, a paper-trading environment, and more.
My top pick, and the one I use every day, is StocksToTrade.
It features everything mentioned above…PLUS, right now, you can get two weeks of both the STT platform and our Breaking News Chat service for $17.
Grab your 14-day StocksToTrade + Breaking News Chat trial today for only $17!
My Final Thoughts…
Shorting can be a great strategy to add to your toolkit but only if you focus on the price action, not the story.
Hype alone won’t tell you when a stock is going to drop.
But waiting for weakness, exhaustion, and clear trend reversals can give you reliable short setups.
And if what you’re seeing isn’t clear, stay on the sidelines. There will always be better setups.
For more mentorship and trading advice, subscribe to my StocksToTrade Advisory service today.
You’ll also get a monthly newsletter with a list of my top picks, three weekly videos with my watchlists, bonus reports, and more.
Sign up for StocksToTrade Advisory right here!
Have a great day, everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrader