Understanding Shorting Stocks
Shorting stocks leads to exciting wins and devastating losses. Not really a good formula for a marathoner day trader.
What is shorting a stock?
The definition of shorting a stock, according to Investopedia.com is: “The sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is motivated by the belief that a security’s price will decline, enabling it to be bought back at a lower price to make a profit.” Day Traders have many different strategies. The most dangerous is called "shorting" when you bet for the stock to go lower not higher. Why is so dangerous? Because unlike a long position that goes against you the max you can lose with a short is UNLIMITED.
Let's say you buy 1,000 shares at $5.00 and the stock goes to $0 - your max loss is $5,000. Now let's say you short a stock at $5.00 and it rises to $15.00 you now are down $10,000 - that's 200% loss and it's not a pretty scene when that happens.
Here is how it happens. Let's look at symbol AQXP this year. Now there are certain ingredients that must be in place for this to happen:
1. Stock is Up Big on the day (yes it went from $2.50 to $11.50 first day)
2. Stock is trading heavy volume (yes it was 200 times average with 62 million traded)
3. Stock has small float under 5.0 million shares (yes it did 3.8 million)
Now its day #2 - the stock opens at $11.50 - MOJO gets up early to trade the action and get in the Squeeze higher. Within 3 hours the stock runs from $12.00 to $55.00 a move of $43.00 POINTS - YES $43.00 POINTS!!!
What would cause a stock to run like this and how can you get involved with these type winners BEFORE they happen so you can score too and not just read about it in the Wall Street Journal AFTER as the weeks biggest winner.
The answer is trade in the MOJO Day Trade Room. See when you know what to look for and trade on a team that has a track record of hitting these winners in past your odds are greatly increased that you too can hit the next round of big market winners.
Now what caused the huge spike in 3 hours. Here is how it happens. Imagine this your in a room following a GURU that has the word "short sale" in his vocabulary and loves to bet against the trend and predict the top of the spikes and reap reward when the stock drops twice as fast as it goes up. See one thing they don't know is that strategy "sucks" and it is dangerous and does not work long term.
Imagine being short 1,000 shares at $4.00 and many traders where. Now the stock goes to $40.00 in a day and your down $36,000. Your in big trouble.
So you SHORT 1,000 shares of AQXP at $4.00 because it's up 100% and you know it will get crushed. Then it closes at $11.50 so you add on to the shares and grab 1,000 more now with avg 2,000 shares avg $8.00
You sleep that night on pins and needles and have nightmares about losing all your money. Well the nightmare has just begun. The next day the stock opens at $12.00 and goes to $15.00 and drops , so you add another 1,000 shares and pray it will continue to drop further as your avg is now $10.00 on 3,000 shares.
Experienced traders have seen this so many times but are unable to recognize this without the help of a coach and caddie. The stock drops to $13.00 your cost is $10.00 just $3.00 points away - "so close' - that was your "LIFE PRESERVER" a trade play that is taught in MOJO University.
See if you would have been smart and just folded the hand there and live to play another day - all would have been great but you all know that never happens. Now the stock rises to $15.00 then to $20.00 then to $30.00 then to $40.00 - you have 3,000 shares at $10.00 ($30,000 using margin) down $30.00 points and $90,000 but your account value is only $20,000 so your in the hole $90,000 - What The FFFFFF are you going to do now???????
Well your firm does it for you as you could not pull the trigger so from $40.00 to $55.00 the stock goes up in 5 minutes. The firms all "BUY IN" your shares as they BUY TO COVER the shares for you. Now your $20,000 account is worth negative $70,000 and your pretty much screwed. The stock always goes back a few weeks later now back at $20.00 and lower but the damage has already been done. That is why MOJO does not short and never will. Its dangerous, risky, counter trend trading, catching knives, surely nuts and if you want to keep your insanity and trade for a lifetime take the word "SHORT" out of your trading vocabulary and strategy.
It happened again on another stock right after that symbol was CANF - the stock was played for a long in the MOJO room at $3.97 and there were shares available to short.
You can see my timestamped call to go long shares at $3.97 at 9:36am. Then at 12:58pm after a great Sushi Lunch the stock climbed to $7.62 High of the day. See Image.
$CANF currently has a high of the day at $7.62! Ouch, that must really hurt anyone who shorted this stock! If you decided to short $CANF when shares to short were available at $3.97, you are in serious trouble and most probably lost your entire trading account.
Conversely, MOJO Day Trading made a massive score on $CANF while the shorters are left desperately trying to salvage what is left of their account. MOJO picked up $CANF at $3.97 and rode it up all the way through $7.50! Longs rewarded and shorters punished. When $CANF blasted from $6.00 to $7.50 very quickly it reminded MOJO a lot of the $AQXP trade mentioned before. When your hand is forced for a loss it's a terrible way to trade. There is no recovery. MOJO avoids this at all costs, never leaving the team of ProTraders in a position where they are being bought into a stock by their trading firm! MOJO DOES NOT SHORT!!!
LOOK HOW EXACT THE (2) CHARTS ARE BETWEEN AQXP & CANF:
So ask yourself, what side of the next big market winner do you want to be on the long side or the short side? The shorters are going to spend their weekends kicking themselves in the butt over an awful mistake, while the MOJO ProTraders are going to be golfing and enjoying time with their families!
Keep it profitable,