Every trader has seen it happen…
You spot what looks like the perfect setup, you line up your order, the trade goes live, and suddenly you’re staring at losses that make no sense compared to the risk you thought you were taking.9/13
That’s why I’m such a big believer in sticking with simple, repeatable patterns you can rely on without second-guessing every step.
And my latest favorite is my Monday Setup.
If you’re not already using this, you need to be. Here’s how it works…
Every Monday, the market kicks back into gear after its weekend nap… and that reset creates a unique opportunity.
As the first session of the week gets started, there’s a specific pattern we look for that appears again and again with uncanny consistency.
And it has delivered some unbelievable gains!
Look at this past Monday…
NanoVibronix (NASDAQ: NAOV) announced it had been granted a new patent, and the stock took off, gaining 168%* in a single session.
These are the kinds of Monday morning spikes we hunt for every week!
Now it’s time to learn how to spot them for yourself.
Watch the video below for the full trade breakdown and strategy tutorial on my Monday Setup.
When a trade goes wrong, it feels confusing and even unfair…
The reality is, for a certain kind of trade, there are hidden rules and risks at play that most beginners don’t learn about until it’s too late.
Today I’ll pull back the curtain on what’s really happening and how to prevent it.
I get asked all the time: “Why can’t I short sell with my account?”
There are a couple of big reasons for that…
And especially for shorting low-priced tickers, there are some big risks.
Let’s go over them today before you even think about shorting penny stocks.
Table of Contents
Margin Accounts vs. Cash Accounts
First, you must have a margin account to short sell. Period.
Cash accounts are great for avoiding the PDT rule, and they still have their place. But you can’t short with them.
If you want to short, you’ll need to convert your account to margin through your broker. That’s step one.
The Borrow Problem
Second, to short a stock, you’ve got to borrow the shares first. That’s why your short order might get rejected — sometimes there simply aren’t shares available.
And with low-float, volatile stocks, those borrows can disappear fast…
If you’re late to the game, it doesn’t matter how good the setup looks… no borrow = no short.
The Real Risk: Shorting Overnight
Here’s where many new traders get into serious trouble…
When you hold a short position overnight, you’re exposing yourself to unlimited risk. And it’s even worse for penny stocks.
Why?
Margin Calls:
With volatile penny stocks, any blip of good news can send these stocks running big time…
And if the stock gaps up against you, say at 4 AM when you’re asleep, your broker may liquidate your position without warning.
That means you’re forced to take the loss, even if you planned to hold longer.
Short Covering Pressure:
When a stock spikes after hours or pre-market, brokers start calling in margin. Shorts scramble to cover, buying back shares at higher and higher prices.
This fuels even bigger spikes, exactly the opposite of what you want if you’re holding a short position. And again, these spikes can be amplified for low-float penny stocks.
Account Blowups:
A stock can only fall to zero, but it can climb 200%, 300%, or even 500% overnight. If you’re short, that means you can lose far more than your original investment.
Many blown-up accounts come from holding the wrong stock short into the next day.
For all of the reasons above, many brokers hesitate to even let beginners, or sometimes anyone, short cheap stocks. It’s like handing someone a loaded gun.
When the Above Events Work in Our Favor
Recently, the wrong person was handed a loaded gun…
That trader shorted SciSparc Ltd (NASDAQ: SPRC), and news dropped Tuesday evening regarding a merger filing with the SEC. By the way, our BreakingNews Chat service caught it right away!
This caused a short squeeze in SPRC around 4 AM.
A move at that hour is hard to catch for most long traders….
But it didn’t end there… The stock then faded into the open yesterday morning during pre-market and then popped by 60%+* right after the bell.
This was one of the most beautiful morning fader patterns I’ve ever seen!!
SPRC Intraday, One-Minute Candles Chart; SteadyTrade
My Final Thoughts…
Shorting can be profitable, but it’s not for beginners.
If you’re going to short:
- Make sure you have a margin account.
- Confirm your broker can actually locate the borrow.
- Understand the risk of holding overnight, where margin calls and forced covers can crush your account faster than you can hit “buy to cover.”
- Always, always stick to your risk management plan.
All of the above advice goes double for short selling low-priced, low-float stocks. In fact, I discourage it for anyone outside the most experienced traders.
Nothing’s worse than staring at a short gone wrong, begging for the stock to come back down, while your broker’s already closed your position at the worst possible price.
That doesn’t mean shorting has no place in trading…
In the right hands, with the right risk management, it can be a powerful tool.
Trade smart, protect your account, and don’t let the allure of the “perfect short” put you in a position you can’t recover from.
Have a great day, everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade
P.S.
To learn the basics of short selling, check out my blog post.
And for more advanced traders, here are some short-selling tips and tricks.
Check out my latest watchlist.