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Short Selling- Tim's Trading Challenge

3 Reasons Why Idiot Short Sellers Are Welcomed

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Written by Timothy Sykes
Updated 5/24/2023 5 min read

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…

Supernova after Supernova. 

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

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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

trading with a full time job
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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.

Trading is all about timing. 

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

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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. 

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

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* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”