What I’m about to share with you might blow your mind…
It’s all about a strategy that I’ve been trading recently that’s brought me A TON of success.
It’s beyond contrarian…
Once I tell you about it, you’ll be shocked at how it works.
In fact, I used it earlier this week to make a fast 16.7% return in just a few minutes in the ticker symbol DRUG.
Table of Contents
The Back Story
When I first hit the scene I was known as a short seller.
I specialized in finding pump and dump stocks and shorting them.
My thinking was, it’s hard to find winning stocks…it’s a lot easier to find the worst of the worst and short them.
And for a long time that strategy worked.
I shared the strategy with a lot of my students, some of them went on to have great success with it.
It was beautiful because it was so predictable.
You can always bet that the worst companies will act in the worst ways.
But around 7-10 years ago…the landscape changed.
The strategy became too crowded…and instead of these predictable garbage stocks dumping…they actually started squeezing.
The risk vs. reward started to shift…and instead of being primarily a short seller I started focusing on taking longs.
But here’s where it gets funky…
Short Sellers Have Become The New Promoters
Even though I don’t short sell anymore…the strategy remains very popular.
The fundamentals haven’t changed.
Stocks that get promoted eventually dump.
However, the timing has become difficult and the moves have gotten bigger.
Yes, most of these stocks will sell off…but we don’t know when and how far they’ll go up before they crash.
That means you need very deep pockets and incredible risk management skills—two things newbie traders don’t have.
And since my main focus is on helping my students become better traders, I stay away from short selling.
Now that the risk vs. reward has shifted…you have a number of traders who try to squeeze short sellers…traders with bigger pockets than you and I.
How I’m Playing This Weird Market Trend
This may sound funny…but I’m looking at buying dips in failed one-day runners.
Why?
Because short sellers are piling into these garbage stocks once they see weakness…
You see, a lot of these short sellers are over aggressive and lack discipline.
All they think about is that the stock they are shorting is garbage…and while that might be true…trading is all about managing risk.
If you short a stock at $3 and it goes to $60 and then later it goes back down to $1…guess what? You are not making money on that short.
I’m not joking…
Look at what happened to VTGN.
Stock went from $2.50 to $60 in just a few hours…
Yesterday it was trading in the $7s.
Like I said, you need deep pockets and incredible risk management skills if you want any chance to survive being a short seller.
For most short sellers, they are one or two trades away from blowing up their account.
Back in the day I was trying to take advantage of sloppy promoters…today I’m looking to take advantage of undisciplined short sellers.
And that’s what this game is all about…taking what the market gives you.
My Trade In DRUG
I traded this stock on August 8th, which was Tuesday.
I got a partial fill on a deep dip buy…
The stock was up A LOT in the pre-market…
It had what I thought was solid news and was heavily shorted.
I jumped in around $4.95…and before you knew it…I was out at $5.78.
If you look at the chart above it got into the $7s…
But I’m not looking to overstay my welcome in these types of plays.
And if you look at the chart following, you can see that it eventually crashed.
To sum it up, shorting has gotten very overcrowded. And because of that, it’s causing shorts to get over aggressive. I’m trying to find stocks where I think the shorts are lurking and trying to take advantage of their lack of discipline.
And thus far, it has been working.
I’m not advocating that these stocks I’m trading are long term buys, but I’m not an investor, I’m a trader who is looking for quick profits on setups that offer good risk vs. reward.
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