Video 6 was so full of information that I had to go over it several times as I took notes. It was heavy on shorting and covered everything from what a short trade is to the $2.50 rule.
A few things that Tim touched on before diving into the business of shorting stocks was a tip on paying special attention to hot industries such as Ebola plays, Terrorism plays, Marijuana/vape plays, Cyber Security plays, etc. because they can see large spikes due to the extra public interest.
You need to be looking for both breakouts and news, not just one... it's a one, two, punch as he puts it.
Don't chase a stock when you don't have clear technical patterns to back up your positions because it can crash on you without warnings, basically don't trade because of vengeance or FOMO (fear of missing out).
You should do your best to follow your rules, breaking them can be a slippery slope.
Tim then shared some of the scans/sites that he uses to find stocks:
- Stocks to Trade software
- Yahoo Finance
- Tim's chat
- Checking news for hot plays
Tim also mentioned setting up multiple watch lists to keep things easy to read and track, such as a top gainer list, short list, longer swing, etc.
Moves tend to gravitate towards whole numbers such as $1 or $2. when a technical breakout takes place at a whole number the result can have more power.
As for his information on shorting stocks, Tim explained that the concept is basically like a long trade only in reverse. Instead of buying low and selling high for a profit, you're buying the right to sell the stock at a lower rate and then taking the difference in price as a profit.
Sometimes shares are hard to find and you may not get the opportunity to short a stock.
Sometimes there is a SSR or short sell restriction that has been placed on a stock to try and prevent the stock from falling to fast. When this takes place and there are shares to short, you'll have to wait for an uptick in the stock price before you can get an order filled.
Other complications to take into account with short selling are margin calls, which is when your broker calls and says that you need to add money to your account. This usually takes place because of the $2.50 rule which basically means that for every share you short you must have $2.50 in collateral. That can add up quickly.
The risk in shorts can be much higher because there is no zero for the price to grind down to, while the stock can rise to any price, in theory anyways. Which is why you must always CUT LOSSES QUICKLY
A forced buy-in is also a negative that you must deal with from time to time, basically if you hold too long the broker can sell your shares at market price, which often times is not the best prices to do so.
Sometime this can spark a short squeeze, which is when the demand to buy is greater than it is to sell, forcing shorts out, and causing a spike in the stock's price.
This is sometimes seen on Fridays with traders who don't want to hold over the weekend.
Tim talked about ALFSS or Always Look for Shorts to Sell, because they can be hard to find, you need to be prepared to grab those you find.
While short selling is meant for a more advanced trader with an account large enough to make it worthwhile, there are a lot of added risks to consider as well... The trade off is that when you limit your shorts to outright scams, pump and dumps, or stocks like our recent $PRGN that shot up over 800%.... you're at a huge advantage because you know the end game. It is going to crash, usually hard, and often times it will fall to predictable chart technical areas of support and resistance.
One thing to also keep in mind when shorting is that because you can be at the mercy of the shares to short, you won't always get the prime entries and are likely to see losses that need to be held longer until they go green.
such as my paper trade of $PRGN that spent the first couple of days in the red while people banked on the way up.
Tim touched a little on pump and dumps and explained that you can make money on the way up, but that it is riskier that long plays on contract winners and earning winners because you don't know when it will switch to a dump and when it does you may have a very difficult time selling your position. A strong reason that Tim doesn't like using stop losses.
Also, the pump is at risk of getting halted, and stocks that get halted often with drop 50% as soon as it is opened again.
You need to remember that promotions are never meant to be permanent and the company doesn't expect the price to stay elevated. The promoter's job is to raise awareness and drive the stock's price higher so that the company can sell shares into the uptrend for a profit... sometimes to raise funding, sometimes for salary, sometimes for less legal reasons. The point being that if you remember this and drill it into your little head... You know the end game.
Often times you'll see a pump become more volatile near the end as they try and get the ticker on the scanners of other traders. You'll also see a fading volume as the selling of shares into the pump slows.
Tim talked about one last consideration with shorting and that was on reserving shares to short. Brokers will charge a fee to do so, but because shares are usually hard to find and only available early in the morning, it can be worth the added fee to reserve shares over night, You also get charged the fee regardless of it you trade it or not, so make sure you really want to trade the stock before requesting reserved shares to short.
Pumps always crash, the chart may be a little different, the timing may be different, but the result is always the same.... again, you know the end game.