How To Short Penny Stocks: Playing It Safe By Covering Short Positions Early

This is a profession where we know 90% of the players lose—you want to do everything you can to not be one of them. What’s worked for me is short selling weakening stocks that have a bunch of overhead resistance and if the price action doesn’t pan out EXACTLY like I want, cutting my losses quickly. I’ve proven both these points with my latest trades on COT and ASTI.

As I posted the other day, I shorted COT at $3.48, encouraged by a late afternoon crack of sideways price action, making em think it’d seen its top. Unfortunately, overnight good news caused a 15 cent/share gap higher—not much, but definitely not to my liking. Thought about holding, but when I see fading volume and 20k and 30k buy orders—whether they’re real or not—there’s the potential for a big squeeze, so I covered my 1,000 shares at $3.60, a $140-ish loss. Not bad, just playin’ it safe.

Minutes later, the stock was looking to go negative and I tried reshorting 2,000 at $3.55—order REJECTED. Too much trading for this under $25k trader, pesky SEC-Reign-Of-Terror-Rule (Pattern Day Trading Rule (PDTR) should really be ROTR) stopped me…stock drops nicely down to $3.25—annoying $500 gain missed, but this is why most traders play FX and use tons of leverage (SEC you realize you’re punishing the good guys and encouraging the bad ones, right? AKA any economic disaster is squarely on your shoulders). Gotta learn I can’t enter and exit as I please, like being on probation for a crime I didn’t commit—never gonna get more comfortable risking losses.

cot

Focused on writing most of the day, but then recent runner ASTI showed signs of afternoon weakness, cracking the day low at $16.20. Sure, plenty of support all through $15.6-$16, but this one was up waaaay too many days in a row, this was its first day, panic was possible—and panic sometimes cuts through support levels like warm butter. Shorted 300 shares at $16.13, not a great entry, but not bad, waited, waited, waited, lots of buyers just over $16 wouldn’t get taken out…until a 20k sell order showed up on the as at $16.05…that scared buyers and the tank was on, right before the market close, coulda woulda shoulda gotten ugly.

But it was stopped cold around $15.90, a pathetic 10 cent panic—screw this, waaaaay too many buyers to risk holding overnight, covered on the bounce at $16.10, made nada after commissions. Sure it finished red on the day and under $16.20 intraday support, but it’d also gapped higher the previous few days and was already $2 off its highs, wasn’t gonna risk it.

asti

Today COT was strong from the get go and ASTI dipped 50 cents before spiking $1.50-ish. Both prove themselves to be more bullish than bearish justifying my decisions to get out…$140 loss is perfectly acceptable, no positions, now I go back to stalking my next prey…

Posted in Pattern Day Trader Rule, Safe Trades, Short Selling

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  • http://investorslive.com InvestorsLive.com

    MXFD is bull – same people as RVNG and KYUS – Just a very small float controlled by very few people. It may get halted before it stops moving up… who knows though maybe it’all work, not sure what could roll in to support 500M-1B market cap but hey worth a shot.

    Where are you able to short it?

  • timsykes

    read this post and u’ll see why no I don’t think ASTI is a great short here…

  • http://www.goodevalue.com Michael Goode

    Hey Tim, take a look at MXFD. The bugger looks to me like it is about to crack. Couple weeks of almost no volume, and the last couple days it has started a slide.

    I’ve been short it for awhile and am sitting on huge losses, but I am patient. Because of the low volume and the hard borrow I’m sure it won’t meet your trading criteria, but it will still be fun to watch it fall.

  • http://www.goodevalue.com Michael Goode

    Interactive Brokers. It took months of watching, and then one magic day a large chunk of shares were available.

  • leo00o83 (Amir)

    ASTI is trading alongside oil speculation. big money is in charge of this rocket.

    Got in CDS at 7.95 today, meanwhile looking good, but we’ll see. Tim if this thing breaks down 7$ would you short?

  • timsykes

    yah MXFD is surely on my watchlist, very scary though, how low did u short?

  • http://investorslive.com InvestorsLive.com

    Its so very controlled and if you watch it the only one that buys is ARCA, TRLN is probably a short but most of the time its ARCA vs ARCA

  • timsykes

    no shares at thinkorswim…cmon goode tell us what u’re in at, u can’t knock me–mr. full transparency–and then hide your details, for shame!

  • Marv

    Tim – CVP took a hit and is trading sideways todays. Your thoughts on a breakout?

  • Kris

    Have any of you guys seen the RUDY NUTRITION drink spam commercial on CNBC? Ticker is RUNU They use some fake website url and say the ticker symbol in the commercial talk about taking spam to a whole new level lol.

  • Tony Ellis

    ASTI…lol

  • http://www.esparko.com Derek

    What do you think of PAY. The company has confirmed financial errors and shares tank.

  • Nate

    Are you cheating on covestor or what’s going on there? 150% return?

  • http://investorslive.com InvestorsLive.com

    CVP Just lit up! Trying to make an afternoon move towards $5.00, Big tanker earlier in the day. Had a good size position at 4.20 but unfortunately sold way too soon!

  • Mike

    Michael Goode, do you know if interactive brokers still has shares available to borrow? I was thinking of opening an account with them.

  • timsykes

    c’mon Goode put up or shut up, you come on a fully transparent website, you try to get others to short a stock you’re getting creamed on and you don’t have the balls to say what you’re entry price is–classic classic classic financial BS. thanks for being the latest reminder at why I’m gonna dominate this industry simply by being open and honest

  • Mike

    That’s a weird stock. It’s a microcrapper in terms of float but still has market cap of half a billion. aka Susceptibility to short squeezes! aka Don’t short until it’s a super nova.

  • http://www.goodevalue.com Michael Goode

    Sorry for the delayed response. I still have a day job and can’t spend all my time here!

    @Mike – no shares have been available for over a month @ IB.

    TIm – I’m short 8,100 at an average price of $13.25. And yeah, that means I’ve been sitting on a loss of up to $50k (currently $36k). I shorted those shares between 2/12/08 and 2/19/08. Interestingly, because of other good calls, I was up 19.48% in February and 16.51% in March despite the huge losses on this position.

    As long as I can hold on for a long time (and I can), there is little risk from spikes in the stock. The only risk if the stock goes Reg SHO and IB forces me to buy to cover at a huge loss. That has happened to me in the past, last January with RMDX. Luckily I was able to short that again just a couple weeks before it tanked.

  • http://www.goodevalue.com Michael Goode

    Mike–the one problem with using Tim’s trading methods on this type of stock is there are rarely shares available to short, and almost never are there shares when you want them. The only way to make money shorting it is to short when shares are available and hold on for dear life. Same thing happened in January with CCYG, and has happened numerous other times with junk OTC stocks.

  • http://www.goodevalue.com Michael Goode

    Tim–you want to apologize? Like I said, I was busy. Anyway, I thought y’all might be interested in it. I’m not trying to get anyone to short it. If any more shares become available, I want them.

    BTW, I am now on Covestor (unfortunately they don’t auto-import from IB): http://www.covestor.com/mbr/goodevalue.com

    My previous trades are all on Icarra (ignore my return, it is not correct, which is why I moved to Covestor):
    http://www.icarra.com/viewPortfolio.php?id=1912

  • timsykes

    Good answers, but no apologies, next time get your priorities straight!

    As for saying there’s rarely shares to borrow–look at my trades man–I’m using a freaken basic online discount broker and I get shares nearly every time. I could use a specialty broker that requires minimums of $250k and get shares EVERY time, but that’d be tough for the mainstream audience now wouldn’t it

  • http://www.goodevalue.com Michael Goode

    Tim–for MXFD and similar thin, manipulated OTC stocks, the borrows are hard or nearly impossible. There’s a big difference between that and stuff like COIN and ASTI.

  • ken

    Just want to share these two from my short filter. NXTM and HYTM are junky companies and the chart is in a strong down trend. There was no recent news to account for the recent big up moves. These types have a high probability of resuming their major trend which is down.

  • Bob

    It seems to me that RUDY NUTRITION (RUNU) is going to take off. It is worth investing in!

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  • JoeJoe

    What broker do you guys use to short pennystocks? The only Online brokerage firm I found to have sufficient inventory is Interactive Brokers? Does anyone use a different firm.

    Please Help.

    Thanks

  • AdamN

    I’ll post this again here:

    Pulled the trigger on GVBP at the market open, shorted 6,600 @ $0.53. Looks like IB ran outta shares already.

  • nifri

    I shorted 4k GVBP avg. 0.5.

  • tryp

    I shorted more as well… total of 6k at 0.44

  • scrillawill

    made 5050 on UNG took profit today held for 1 week

  • Jon_Reed

    Wow….

  • scrillawill

    sorry i made 5100.25 on UNG

  • rarmany

    Hey scrillawill-QG, that’s my money you got from UNG. LOL

  • jchahboune

    hey tim, how do you trade stocks with big spreads? sacrifice the spread or try and use it to your advantage?

  • joethemoe

    In 1.11 NCOC out 1.34. made $184.

  • jeffryg21

    Hey TIM, Just curious as to why your ignoring your ‘first down day rule’ to short GVBP?

  • http://www.timothysykes.com timothysykes

    jeff, gotta be early on true pump & dumps as there won’t be any shares available to short when its perfectly time…like BONU

  • jeffryg21

    ya, just read above right after I sent that, thanks! hope the best for all you guys…

  • Geo2888

    TIM, GVBP is knocking on 0.60, whats goin on…..

  • http://www.timothysykes.com timothysykes

    Geo its a pump & dump thats whats going on, stop bothering me and learn

  • be the ball

    well, here’s to hoping IB keeps getting more shares each morning.

  • Geo2888

    TIM, sorry to bother you again but GVBP broke 0.60 on huge volume! when should we cover?

  • Geo2888

    TIM, sorry to bother you again but GVBP broke 0.60 on huge volume! when should we cover?

  • http://www.timothysykes.com timothysykes

    Geo, u can do whatever u want, i’m holding and am looking to add to my position for the inevitable crack…5 PRs in 12 hours reeks of desperation on the pumpers part

  • BULL

    Hi everybody, could anyone be so kind to explain me why on GVBP´s graph shows 3 drops to $0.45 level?

  • Hardo

    Shorted 5000 GVBP @ 0,535 this morning right at the open.

  • jchahboune

    it doesnt. you have a problem with your charts.

  • avoigt_2000

    LXRX nice fade…ONTY,QLTI,ATSG breakout

  • jerry1213

    How do you think about CVM?

  • scrillawill

    rarmany sorry but i wouldnt feel right giving it back to you

  • be the ball

    woh, about 5million shares traded in blocks there a few minutes ago. didn’t move the price at all

    GVBP

  • preston

    Shorted FNET for a 173.21 gain (700shares) on fading action. There was no news I could see and the set up looked like the ones Tim has put forth in the DVD’s.
    Thanks Tim

  • rarmany

    scrillwaill, its all good

  • TerranFirebat

    long rtk low risk nice level 2

  • braderhart

    I’m thinking about shorting ZOOM if it gets back up to 11.00. I know it’s up on tangible news, but look at the price action. Potentially a .50 per share gain.

  • Jeff Moates

    GVBP is up 1900% in the last month, amazing…

  • avoigt_2000

    GVBP look like begin to die

  • rarmany

    New stock to watch LXRX up 11,414%

  • braderhart

    FNET is up 157% on no news. Could be a decent one to watch.

  • http://www.timothysykes.com timothysykes

    guys, help me complain to the SEC on GVBP, dirty dirty press releases they’re using, below that of most stock promoters

    http://www.sec.gov/complaint.shtml

  • Jon_Reed

    I thought that is what you loved…..BS press releases?

  • zuluobb

    Nice fade on YRCW.

  • be the ball

    If anyone has any worries that GVBP is going lower eventually, read their latest quarterly report. There are 100 red flags in there at least.

    Here is my favorite part:

    From inception, Kinder Travel Inc. had been a travel agency offering a full range of travel services including corporate travel, vacations, cruise holidays, and group tours. Since Kinder Travel Inc. was incurring continued losses in the travel industry, the Board of Directors decided it was in the best interests of the Corporation to pursue other business opportunities. Through his past contacts in the bio-medical industry, the then President of Kinder Travel Inc. initiated negotiations with Phoinos Oxford Lifesciences Limited, a company incorporated under the laws of the Federation of St. Kitts & Nevis (“Phoinis Oxford”), for the purchase of medical patents for the treatment of prostate and breast cancers. On April 15, 2009, Kinder Travel Inc. entered into an asset purchase agreement dated April 15, 2009 (the “Asset Purchase Agreement”) with Phoinos Oxford.

    St. Kitts! Are you fucking kidding me?

    I was a nervous short but now that I have done my homework I feel better

  • http://www.timothysykes.com timothysykes

    Yes Jon it is, but i dont like extra dirty tricks…i’m out, nasty 4k loss

  • Josh T.H.

    +202 on YRCW fade, thanks zuluobb

  • Mmatrixmark

    Hello Tim

    I live in the uk and I am very interested in shorting stocks. Could you point me in the right direction of which which brokers to use. I got wall street warriors recently and thought you were awesome man. I love your attitude. So cool man.

  • http://www.timothysykes.com Anonymous
  • http://www.timothysykes.com Anonymous
  • Anonymous

    How is it that this one trader among a thousand makes every day so exciting, so interesting? Edge of the chair waiting to read the next paragraph. VERY skilled writer. Thank you for generously sharing. It’s quite kind of you for those of us new to the concept of mostly shorting rather than buying up. 
    One thing from your videos struck me the other day. Saw nearly 1k in value disappear from our BIDU, (ended up dumping some), in seconds, and SPRINGING into mind was your comment that stocks tend to fall faster than they go up, and, like a light blinking on, I decided it may be time to join up with Tim Sykes. You seem to be a mentsch, as my Grandma would say, so, let’s give it a try. Your generous gift of time was the final push. (Congrats, we’ve resisted dozens and dozens of blandishments from other signal sellers/trainers).  Thank you

  • RB_Rutledge

    I haven’t gotten into your system yet, but I sincerely hope you address this.  I googled “how to short penny stocks” simply because I KNOW this is the best way to make money fast.  The problem I have encountered is, so do all of the brokerages I’ve checked on.  They all will NOT allow you to short a stock under the value of $3.00 and many won’t do it unless they are over $5.00 in value.  I SURE hope you cover this.

  • http://www.timothysykes.com Anonymous

    yup see my preferred brokers at http://bit.ly/bestbrokers they all let you short under $5/share