On Wednesday, the Fed held interest rates steady…No surprise there.
But then came the head-scratcher…
When talking about potential rate cuts, Fed Chair Jerome Powell said:
“We know that the time will come. It could come quickly. It could not come quickly.”
Wait, what??
Not exactly the kind of crystal-clear guidance the market was hoping for.
And it reacted accordingly. Here’s the S&P 500 from Wednesday:
SPY Intraday, 1-Minute Candles Chart; SteadyTrade
Between that and major tension in the Middle East, the markets have been down three days in a row.
Am I worried?
Nah…
We keep seeing big day trade winners day after day…It’s like the major indices don’t even exist!
And particularly on Mondays…
Do you know about my Monday Setup?
This pattern mysteriously shows up only on that day, and it can move fast!
We’re talking about moves that could deliver more in one morning than most people see in a month!
And for a limited time, we’re offering the Monday Setup for just $7!
That’s an 85% discount off the regular price.
Monday will be here in the blink of an eye… Wanna start your week off on a high note?
Check out this pattern ASAP in my video tutorial below.
And guess what…
We can also win big, especially when the market is down.
A sell-off often fuels these big movers.
Case in point: Processa Pharmaceuticals (NASDAQ: PCSA) returned 62%* on Tuesday.
Remember, I told you yesterday that Oracle is a great tool for nailing short sales?
I wasn’t kidding…
Here’s what happened with PCSA:
PCSA Intraday, 5-Minute Candles Chart; SteadyTrade
So if you’re interested in adding short-selling to your game plan, or are already doing it, Oracle is the tool you need.
It catches short sale winners every single day.
Table of Contents
What Is Short Selling, Exactly?
Today, let’s talk about short selling, a strategy that can be just as powerful as going long, if not more so.
I love this strategy… Early in my career, the majority of my trading was shorting.
I know a lot about it!
For some, this may be a review…
And for others who are new to it, here’s the simplest breakdown:
- You borrow shares from your broker
- You sell them at the current price
- You wait for the price to drop
- You buy the shares back cheaper
- You return them to your broker and keep the difference
Here’s what happens when a short trade works out in your favor…
Let’s say Stock XYZ is trading at $50 and you think it’s headed lower.
You then borrow and sell 100 shares, pocketing $5,000.
A few days later, it drops to $30. You buy back those 100 shares for $3,000, return them to your broker, and you just made $2,000 (minus fees and interest).
Why Bother Shorting?
- You can profit in bear markets.
- You can hedge against your long positions.
- You can take advantage of overvalued, overhyped junk stocks.
Sounds great, right?
Yes, but you have to know what you’re doing…
Short selling isn’t for everyone, especially if you’re brand new, and it’s not something you can just wing.
Shorting Comes With Big Risk
When you buy a stock, your worst-case scenario is that the stock goes to zero…
But when you short a stock, your loss can technically go to infinity. That’s pretty scary.
Here’s what can go wrong:
- A squeeze forces you to cover at a loss.
- You face a margin call if the price spikes.
- You enter a short too early, and the stock goes up.
You have to be precise in your trade. If you’re swimming upstream against market euphoria, one mistimed entry can lead to a painful and costly exit.
My Rules for Short Selling Like a Pro
If you think you’re ready to short sell, here’s what you need to do:
Use technical and fundamental analysis:
Study the company’s fundamentals, but don’t ignore the chart. Look for resistance zones, fading volume, and momentum shifts.
Set a hard stop-loss:
This is non-negotiable. Don’t “hope” your way back to green. Let the math manage the trade.
Use a trailing stop:
If the trade’s going your way, trail that stop to protect profits. The goal here is to stay in the game while the trend is on your side.
For more information on stop-losses and how to use them, check out my blog post.
Watch short interest closely:
High short interest can be your friend—or your nightmare.
A stock loaded with shorts can get squeezed hard and fast. Know exactly what you’re trading.
My Final Thoughts…
Short selling is a skill, and like any skill, it takes discipline, training, and tools.
But if you learn to short trade the right way, with risk management, technical analysis, and the right alerts, you’ve just added another high-powered weapon to your trading arsenal….
Learn the strategy inside out, practice it, rinse and repeat.
Don’t trade blind. Trade smart. Trade prepared.
Have a great weekend, everyone. See you back here on Monday.
Tim Bohen
Lead Trainer, StocksToTrade
P.S.
- Aren’t ready to short sell? Play the other side of the trade.
- If you’re new to trading, this strategy can help you learn faster.
- Here’s how I find the day’s top movers.