I’ve been trading for roughly five years now, becoming profitable after 3 and my mindset is that of a giant, starving, grizzly bear.
I don’t like the majority of bulls, especially ‘noob’ bulls, who follow ‘furu’ alerts. I’ve seen too many celebrate making a quick buck on twitter before blowing their account and disappearing into the Twittersphere.
Their behavior is irrational and idiotic – as are most forms of going long to me. I used to be a losing long trader, too, until I switched short.
Which prompted me to write this article explaining two reasons why you should go short if you’ve been consistently losing long.
But before I start I’d like to say two things:
First: for those of you who are making money going long, bravo. You must have found Frodo’s golden ring and deserve a seat at the throne - keep slaying those dragons.
This article is geared to those who consistently lose at longing and may want to consider switching sides.
And finally, disclaimer: this article is mostly anecdotal and written to stir healthy engagement and discussion. Don’t hate the player, hate the game. For a more formal disclaimer, see the end of the article.
Reason 1 to switch short: You’re longing trash.
Micro-cap, low priced stocks are of low value for a reason – most are trash. They’re cheap to buy because they lack quality. Good things are expensive, that’s just life.
Most of these companies have no money, generate little to no profits and are diluting their floats at the expense of you – the trader – to survive. Many of these companies will go slowly go bankrupt.
So already, you’re going long a company with little to no hope of surviving in the long-term. Isn’t it better to make the logical short?
$CRXT, for example, managed to climb from sub penny to the $4 range only to be trading back under a dollar in a matter of days.
The stock gained traction on news it was presenting research data at the Androgen Societies 4th annual meeting between April 21 – 23.
Shortly after the conference ended, ironically, the stock was back to its lows – helped by the announcement of a $30 million underwritten public offering reported on April 24.
By looking at SEC filings we can see companies with little money that are more likely than others to dilute, creating better short opportunities.
Lesson: If you can’t go short - at least don’t long stocks low on cash - check their SEC filings!
Reason 2: Data provides statistical edge shorting
In my experience, when you’re looking to take a long position in a trade, you’re predicting a move; but when shorting you’re reacting to a move that’s already happened.
Because we’re reacting, we can measure success rates and time our entries more effectively by analyzing historical stock market performance.
For example, based on my own collected sample of data. If I shorted 300+ of my tracked day one gappers (up more than 25%) at the market open and covered at the market close, my evidence shows I’d have won 64% of the time. The other times, 19% would have been more or less break even and 16% of times a loss.
To get a better short entry, from of the ones that failed, I can look at on average how much each pushed from the open (forming their high of day) before failing.
There is no stock-market related advice here, it’s just an example of how you can collect and interpret data to form a competitive edge when shorting.
Now, if you’d like to give shorting a go, here’s why I recommend TradeZero.
Reason 1: Premium locates
To take a short, you have to locate shares of the stock first, otherwise you can’t take the trade. This is a huge problem with many brokers as many simply don’t have shares available for you to locate.
TradeZero has an extensive collection of all of the premium locates, specifically for micro-cap stocks. It’s rare you won’t find locates for a stock you want to short.
Reason 2: They’ve won awards
TradeZero has been named ‘Best Broker for Short Selling’ for two consecutive years in the Benzinga Global Fintech Awards. I’ve been shorting with TradeZero since 2017 but it’s good to see they’re recognized for their services.
Reason 3: Commission free
It’s difficult or near impossible to find a specialist short-selling broker that’s also commission free. TradeZero International and TradeZero Canada have a structure which enables commission free trading.
And that’s a wrap. If you do want to sign up to TradeZero you can get three month’s platform access through this link: https://www.tradezero.co/stephenjohnson
This content (“Content”) is produced for TradeZero Inc. and TradeZero Canada Securities ULC (“TradeZero) by Stephen Johnson. Mr. Johnson is compensated for these services. The Content represents only the views and opinions of Mr. Johnson. Mr. Johnson’s trading experiences and accomplishments are unique, and your trading results may vary substantially. TradeZero does not endorse the Content and makes no representation or warranty with respect to the accuracy of the Content. The Content has been made available for informational and educational purposes only and should not be considered trading or investment advice or a recommendation as to any security. Trading securities can involve high risk and potential loss of funds. Mr. Johnson may also receive compensation for customers he introduces to TradeZero and its affiliates.
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