A Lesson on Short Selling +$31,076.62 in 2hrs transcript

What's up, everyone? All right, so in today's episode, I'm going to break down my trades from the morning. But before we do, I want to talk about yesterday's [music] 4,000% short squeeze on TCGL. So, that stock ended up peaking at about $457 per share. You'd say it was a black swan. And for short sellers, and I saw a number of them on social media who blew up their accounts yesterday, it's an eye openener. Now, they're called short sellers because they have short memory.

The fact is that move, it's not the first time I've seen something like that. I've seen that type of thing happen dozens of times. Literally dozens of times. We just were teaching the class on lowflow parabolic moves just this week and I was showing you an example of a stock that went from about $5 a share to 500. I showed you an example of a stock that went from $10 a share to $2,600 a share. This one could have gone higher.

It stopped where it stopped. We don't know why. I can speculate, but we've seen even bigger short squeezes. The problem with a short bias strategy, especially with small caps, is that it can be very hard to control your losses when they start going against you, especially when they start halting back to back to back. This TCGL yesterday halted up at $53. It resumes at 114. How do you manage your risk on that? You've got 10,000 shares, you're down half a million dollars in an instant.

And there's nothing you could have done about it. It's just instant massive loss. What about the one a year and a half ago that halted up at $20 a share and resumed at 500? A $470 per share gap. 10,000 shares on that, you're down nearly $5 million. So, the problem with the short bias strategy is there are a lot of people out there that sell you on this technique. They tell you all you have to do is keep adding, keep adding, keep adding because everything that goes up eventually comes back down.

That's true, but can you afford to hold through the very top of the peak? And what ends up happening is while that technique can work nine out of 10 times, you add, you add, you add, it comes back down, you cover for profit. On that 10th time, you get a stock that goes up to 150, 200, 300, $400 a share. You give back everything you've made. you've got a margin call and you're broke. In in fact, you're potentially bankrupt because now you owe your broker a lot of money.

Now, I'm not saying trading to the long side doesn't come with risk because it does. Trading to the long side is risky. If I buy a thousand shares of a stock at $5 a share, I'm putting that money in. But what's the worst thing that can happen? It goes to zero. Now, I have seen stocks that have dropped 90% in a single day. They tend to be Chinese number one or a stock that has terrible news which has come out but that's actually less likely less common.

What it happens more often is we see a foreign listed stock drop 90% in a single day. However, as long as you're trading during the pre-market session, you have the ability to get out without getting caught in a halt. So essentially, yes, your worst case scenario, trading the long size, the stock goes to zero through either bad news or being a Chinese liquidation, but you're not exposed to an infinite loss like what happens when you short a stock at five and it goes to $400 a share.

That's where it gets really scary. So, because we had this crazy move yesterday, I was expecting um today would be volatile. I I wasn't, you know, it's Friday, kind of a wild card day. Um, I wasn't sure exactly what to expect. TCGL has pulled back off the high. So, most likely what happened is there were some shorts and we've already seen them posting about it on social media that got liquidated. So, their broker autoquidated and closed their position for them and took over their account, pressed the buy button, and they're they're out.

So, you know, that probably fueled this squeeze right here all the way up to $457 a share approximately, something like that. Then it drops all the way back down to 80. All right. Then it bounces up to 240. And at this point, it's just there's there's not the liquidity to trade it. I'm not going to get into trading it. I'm just going to, you know, leave this alone. Um I will just for the sake of it here, I'll just pull up my class.

Um so this is a section we were teaching or that I've been teaching. um this past week. So, if we go up here, um oh, so this was the one here that halted up at uh like, you know, $25 a share, whatever it was, opened at 500. That was insane. Um this one halted up at 20, opened at like went to $220 a share. Insane. This is not the first time we've seen this happen. Not even close. Um then we go up. These are some of the Chinese liquidation events, but I'm going to go up here a little bit more to let's see um some of the lowflat uh and light volume.

Let's see. Low float recent reverse split. These recent reverse splits. Yeah, let's see. Uh oh, this is actually what I wanted to look for up here. So, uh this one here from $10 to 35 in one day, right? this one here from $3 to 13 in one day. All right. You know, these are these are big. They're not I mean, we've we've certainly seen bigger moves than that. Um, let's see. This is the parabolic momentum section. So, let me just go to this one here.

This one's the this is where things get crazy. This one goes from $8 to 80 bucks. You could see that uh chart. And there's no way to manage your risk if you're short. This one goes from $20 to $80. Similar. This one goes from $10 to 130. I mean, I've seen these happen more times than I can count. I mean, I have some of the screenshots here, but we see it happen again and again. Now, anytime it happens, I rarely trade these moves.

The reason I rarely trade them is because they're hard to manage your risk on. Um, this was HKD, which is the one that ended up going all the way up to $1,000. Then the next day it goes even higher to $2,600 a share. Um, but the fact is I don't usually trade them uh because they're not liquid. You can't easily get in and out. Now, I will say that TCGL had pretty good volume yesterday. I mean, and well, you know, comparatively, relatively speaking, having over four nearly 5 million shares of volume was pretty good.

We look back at HKD and that had less than 100,000 shares of volume on some of the days it was making big moves. So, it was very illquid. But even right now, if I look at the level two on um TCGL, oh, it's well, it's halted right now. So, it's on a halt. But in any case, the level two for most of um the time that I was looking at it yesterday and even this morning, 10point spreads, it's got very light volume. It's it's not really tradable um for anyone to the long side.

So, you might say, how is it even going higher? Who was buying it at $50 a share yesterday? who was pressing the buy button at 160, 200, 280, 300. And I would argue that it's short sellers who were shorting into the strength. They were shorting as it was going higher and higher and higher and then are forced to buy back. Now the thing with a lot of these foreign companies and this is typically the type of company this happens to is that uh usually the ownership of um the shares is concentrated among a very small number of people.

And so the actual tradable float is very low. And it's not uncommon to see these start to squeeze and it doesn't make sense, but they just keep going higher. And then shorts essentially it becomes a self-fulfilling prophecy that they create their own squeeze by getting short too aggressively and then they're forced to buy back the shares. So in any case, we had this huge move yesterday. Um I didn't trade it yesterday.

I didn't trade today. Full disclosure, I didn't feel like I could manage the risk on it. So that was the right decision for me. Uh but coming in this morning I was thinking well is this going to create sympathy momentum because often that is the case that we get sympathy momentum after you know a big move. So FATBB um is up 556%. However it started below 50 cents a share and usually when these start pretty cheap like that um they're not super easy to trade and so this one's been very thickly traded.

It's been very crowded. Um FATBB uh it's also halted right now. But in any case, I just sort of knew at this price point, I probably wouldn't do very well on it. So, when I first looked at the scanners this morning, I was like, uh, that one's I can't really work with that. Um, ANL, um, this one ends up going from $5 up to 6 7 8 910 after hours. Double tops at 14, then rolls over. Um, BMAI, this one had an interesting headline today. a private placement uh $1.5 million at $63 a share.

That's a really high price. So, I was sort of surprised it isn't holding up better. But anyways, I I you know, I don't know. It that's what it is. Um TWWNP, this one's cheaper. Left that one alone. GITS, this one uh now squeezing up a little bit more. But to me, this is more of a um just a daily setup. first daily candle to make a new high kind of continuation. Doesn't have fresh news. Um, but the one that I did trade was LRHC.

Now, this one has popped up a couple times, but it made a pretty big move after hours from three all the way up to eight. It dips down. It curls back up. And I took this trade this morning on the break through the volume weight average price. And here's the way I thought about this. It was consolidating right underneath VWAP. We had essentially a little cup and handle formation right under VWAP. And I said to myself, if this thing can break through VWAP, we get up to 6 650.

If we get over seven, all of a sudden, you're looking right back at this uh pre-market high of eight. We get up to that level, this is going to be our leading gainer in the market. And given it's a recent reverse split with a lot of room on the daily chart up to the 200 moving average, I felt like this one had some potential. So, I sized up. I took a pretty big position. I jumped in. I put my money where my mouth is.

I was like, "All right, here we go. I'm gonna be aggressive on this. I'm not going to take a lot of trades, but when I take a trade, I'm going to be aggressive." So, I jumped in and I'm adding, adding, adding, adding, adding as it's going higher. And it's ripping. It's going 50 cents a share. It's going 530, 550, 580, 590, $6, 625, 650, $7. and it comes up to a high of 725 and I was like this is fantastic. This is a this is a beautiful almost $2 a share of profit at that peak.

Not quite but it was getting close to that. And at that point I was like all right if we hold over seven then yeah absolutely looking for 758 and if we could break through that level then 910. That's what I'm thinking in the back of my mind. I thought this had the potential to be maybe one of the biggest winners of the year. The reason I thought that was because of course the momentum and the sort of sympathy momentum from yesterday's move on TCGL.

So I thought that was sort of the initial catalyst. Traders are more aggressive today. Short sellers are more cautious today. This could be the perfect storm for a stock to make a really impressive move again here today like we had yesterday. And this one already had maybe well at eight or nine t million shares of volume something like it had a lot of volume already so it was liquid. It was maybe the fourth leading gainer something up up in this area about where it is now third or fourth.

Um but the ones that were the leaders weren't really looking that great. So I felt like this was sort of like the market was primed. This was set up and I stepped up to the plate. And then you know what ended up happening is up around seven it became a battle and it dips below seven and I'm adding adding adding and I started getting a little stubborn. I was like this doesn't make sense. Why is this so heavy here? It's a recent reverse split.

It's a low float. What's going on? And I'm having a hard time understanding why this thing isn't already at 750 and 8. So I mean ultimately this is the mystery in the market. Why does one go to 400 and another one only goes to seven and can't even get to 725? Um, and at the end of the day, um, I I I don't know the exact answer, but when I looked at this, um, the thing that I was thinking about was, do we have a recent shelf registration?

And, um, what are their financials? Is this a company that is likely to be selling shares on the open market like ASAP? Someone mentioned that they had um some convertible notes. They had some warrants, but they were priced a bit higher. So, I was like, "All right, well, if they're priced higher, no one's going to execute on them." Um when we look at the financials here, this is, you know, typically what I'll end up doing is I'll check the financials.

I'll look at their um current assets and how much cash they have on the balance sheet specifically. And I I don't have a chance to do this before the trade. It's usually after the trade or maybe while I'm still in the trade that I start to check to see what is this situation because when I first take the trade, it's purely technical. The stock's on a scanner. It's at technical level. You know, the volume's right. It's moving.

So that that's what I'm doing in real time. And the fact is you can have companies that don't have a very good balance sheet. Um they're not making money and the price still goes higher. So the loss from operations here for the three months ending September 30th shows $5 million. All right. So $5 million. Now they're doing revenue, but they're spending a lot of money to generate that revenue. So they're losing money here.

So they've got a net loss. So then you look back at the cash on the balance sheet. It's not adequate to cover even really another three months of operations. So now you sort of have this question of okay, are they working with an underwriter to sell shares on the open market in order to capitalize on the fact that the stock is up? Since the move began yesterday, they already, I'm sure, got alerts that their stock price is up over 100%, you know, in after hours trading.

So, it wouldn't surprise me that they would be ready to start taking um action and raise money on the market. When a stock pops up initially on breaking news, like within two minutes of that breaking news, sometimes we also see selling. And when that's the case, it makes me think that the underwriter is working with a company. They know when the news is coming out, and they're planning to start selling as soon as liquidity comes into the name.

So, how much these stocks go up ultimately in a lot of ways is determined by the company themselves. If they decide to start selling into all the buying, they're affecting the supply demand uh equation and they're stopping their stock from going higher. If they don't sell into the market, then their stock is able to keep going higher. Now, if the company has previously sold a lot of warrants, if they had, you know, convertible uh share loan deals, then there may be institutional traders that are out there that also are owning shares that will take the opportunity to sell.

And that's more of the company's previous decisions to dilute kind of coming back and creating an issue even if it's not the company in on that particular day that's selling. So, while you can spend a lot of time getting into the filings, the shelf registrations, looking at all the warrants and everything else, if the price action and the technicals no longer support being in the trade, I get out and I can then go and check and try to speculate why did this one, you know, get so difficult here?

Why wasn't it able to pull away to 750 and to 8, you know, especially on a day like today where it felt like we had so much potential. So, I ended up giving back some profit off the top. I had unrealized profit. In fact, I mean, gosh, I had a good amount of unrealized profit. Um, and I gave some of that back off the top by the time I finally sold. And then because I kept kind of taking stabs at it around seven, thinking that this thing was going to work, it just I just need to be patient with it, it, you know, eventually gave back even more.

So, um, you know, at the end of the day, I think the most I was up in realized locked up gains, maybe 40,000, 39,000. So, gave back, you know, 25% off the top. That's kind of similar actually to what I did. Was it yesterday? No, it was the day before. It was the day before. Um, and you know what? I guess like I often say, every day you're doing one of two things. You're leaving money on the table or you're giving back profit.

And I'm trying to be aggressive when the market seems like it's calling for that. And I am stepping up to the plate. I'm taking bigger positions. And you know what? I'm gonna have a few times this year where it connects and I have a trade like this that goes to 8 to 9 to 10 11 12 and I'm up 150 grand. And I'm going to have some days like today where I step up to the plate in a big way and I don't hit a home run, but you know, I'm on second base or whatever you want to stick with that analogy, right? where it's still more than a base hit, but you know, it's not the home run.

And I was almost to third and then I had to run back to second and, you know, settle for a little bit less than what I wanted. But, um, you know, I did have one day last year where I was up unrealized $250,000 on a stock and I didn't take any of it off the table and I ended up being down 50,000 on that stock. And that was a little disappointing. Um I think it was ESB. Uh or maybe it was BMR. But in any case, I sized up heavy and it was like 40,000 shares or something like that and I was up five $6 a share and then and it was when the stock was like 4849 $50 a share.

So it was a huge position. VCN. There you go. and and I'm I was up five six points and then in an instant it got smoked. It just flushed like a liquidation and all of a sudden I went from being up six points to being break even and then I was down two points and I was like what's going on here? Anyways, um you know I want to try to avoid having too many days like that. Um it is important to you know not turn trades from winners to losers.

So although I gave back a little bit, um I had the cushion to take that risk and I can I can live with that. So um anyways, you know, curious to hear how you guys did today. U this one gave us that break of VWAP. That was a nice move. There were a few others that popped up. GITS looks like this one uh coming back down a little bit off the double top. Maybe we'll have, you know, more momentum later in the day, but you know, it's hard.

And this one also popped up. I I left that alone. Um I was considering it but I noticed it's easy to borrow. Uh pulled that up one pulled that one up on um light speeded. Let's see. So um PMN and saw it's easy to borrow right here. So I was like nah it could work but I'm going to have to be a little patient with it. Anyways didn't end up working. So yeah I don't know. I guess I'm not super shocked. Sometimes the day after a big move things can be a little sloppy. um you know there's FOMO in the market, people are jumping on anything popping up, you have some round trips.

I you know and the fact is LRHC it didn't have a clear catalyst. Um so you know that was something that concerned me on the one hand but on the other hand it was the you know third leading gainer or whatever it was. So it's like you know that it was up quite a lot um and it it definitely had a lot of volume. So I was I wasn't really worried about like an immediate round trip. I mean it has pulled back but I wasn't worried like an instant rejection feed on the scanner just kind of grinding a little higher continuation on the daily chart.

So anyways um good job for those you guys that got in you got green manage your risk. Reminder as always of course trading is risky. My results aren't typical and there's no guarantee you'll find success whether you trade with me or you learn on your own. So, the best thing you can do is manage your risk by learning and practicing in a simulator before you ever put real money on the line. I hope you guys have a great weekend and we'll be back at it bright and early Monday morning, 7 a.m.

I'll be streaming for members here at Warrior Trading.