Short sellers are like plastic…polluting the world.
Most of them are narrow-minded…negative…and miserable to be around.
However, I’m grateful for them.
Because without short sellers, we wouldn’t have as many beautiful trading opportunities lately.
It seems like it’s been one short squeeze after another…
The majority of short sellers are mindless sheep.
But I have no problem taking money from them.
In fact, I’ll share with you their three major flaws and how I use them to make money off them.
#1 Short Sellers Think They’re Smarter Than The Market
Respect the price action…respect the volatility…respect the market.
Short sellers have no respect.
They believe their opinion is always right. And they use “logic” to justify their aggressive, reckless behavior.
Take the symbol MBOT as an example.
On May 22nd, the company made a press release it achieved a 100% success rate for Liberty in an extensive preclinical animal study performed by leading European physicians.
While the news was bullish…short sellers made this trade much bigger than it should have been.
The stock went from $1.23 to a high of $4.37.
The short sellers in various chat rooms talked about how garbage a company MBOT was…and that this was just a pump for them to raise capital.
Which I don’t disagree with.
But we are not investors here. We are day traders.
That means you can’t only use logic.
What the idiot short sellers forgot to think about was how cheap MBOT is.
The company has a float of 8 million shares or so. And it was trading at around $1.50 at the time.
In other words, you only needed about $12 million in buying power to control the entire float!
Now, don’t you think that’s a bad setup if you’re a short seller, regardless if you think the company is trash or not?
Short sellers fail to think in terms of risk vs. reward.
This is one of the reasons why so many of them blow up their accounts.
#2 Short Sellers Have No Sense Of Timing
The funny thing about MBOT is that the company used that press release to boost its stock price to make a stock offering.
But we aren’t playing Jeopardy here.
This is trading.
That means you must manage money properly if you want to be in this game for the long term.
And that’s the problem with short sellers.
You can short a stock at $5 with a strong thesis…the stock can be trading at $10, $15, or $20…and your thesis is still true.
However, you are DOWN A LOT of money.
You can have the right idea, but if your timing is off…you can lose money.
That’s why I like buying on panic sell-offs. I believe with a better entry, I have a greater chance of making money.
I don’t just trade a stock, I’m trading a stock at a specific price. And if I can’t get my price, I will wait or not trade it.
Most of these short sellers will not move…just wait for the train to come and run them over.
#3 Short Sellers Have Little Concept of Risk Management
It’s a scam…it’s got to go to zero.
Sure…but what if it goes to 100…200…or even 1000 before it goes down to 0?
You need to have a risk management plan.
I’ve maintained my consistency over the years because I’ve done a solid job of cutting losses quickly.
If you can keep your losses small…you have a better chance, I believe, of making it in this game.
Don’t be one of those short-sellers relying on pride and logic…as they watch their life savings flash.
Now, that might sound dramatic to some. But it’s happened more times to traders I know than I would like to admit.
Safety first.
And make sure you have an out before you place your trades and a number you’re willing to lose.
Getting steamrolled is not a sound risk management strategy.
If you’d like to learn more about how I exploit foolish short sellers, you’ll want to watch this video.
Leave a reply