Discover the Shocking Truth About Short Selling transcript

in today's episode I'm going to teach a lesson on Short Selling because I've decided to start shorting I've gotten to a point where I've noticed this theme in the market it's a pattern and it keeps happening sometimes we're seeing these drops of as much as 90% in one day and I feel like I'm an idiot if I don't start to participate in trading some of these moves to the downside and naturally the only way to do that is to start Short Selling so for those of you who are brand new to Short Selling let me just give you a quick explanation of the way it works as the price moves higher typically I'm a buyer down here I buy and I want to sell as the price goes higher thus making a profit but a short seller does the opposite they sell creating a negative position let's just say for example of a th000 shares and then they want to buy back that position at a lower price when they do that they'll profit from the difference it's the exact inverse of going long going short you sell and you cover or buy back your shares at a lower price so when we see these big drops these are areas where short sellers can find profit and when we have this type of theme where we continue to see these types of drops I feel like I'm an idiot for not trading them so this is a theme that I've been noticing for a few months and it just keeps happening again and again and again it's like sooner or later we get the drop some of these um are really strong initially you get a nice rally up but eventually you get that drop and there's a few of them that have been especially dramatic so as this one went higher eventually It reversed and came all the way back down this one took its time this one it went red pretty much immediately and never recovered this is another one where we got a big move up and then all the way back down and look at how low this has dropped this is all the way at $269 versus a high up here adjusted because of reverse splits it actually if you factor in the reverse splits it went up to over $600,000 $600,000 then it came all the way down to two now they have to adjust it because they keep doing reverse splits and they do that so the price can keep going lower and lower and lower okay so it feels like there's a real opportunity here to trade these to the short side here's another example where we get the price going up to 14 and then all the way down here to 40s in one day this is a huge amount of volatility now what I've noticed is there's a set of shared common characteristics the first is that these tend to be Chinese companies they're Chinese companies they operate in China but they're listed on the US market the US Exchange number two they share similar Underwriters Underwriters are the institutions the financial institutions that help bring these companies into the public market and it sort of naturally makes sense that if an underwriter has a history of bringing really strong companies into the market they're going to be noticed as you want to pay attention to the next companies they're going to IPO but the inverse is also true if a company has a history of bringing really low quality stocks into the public markets then Traders are just looking for the next one to trade to the short side and that's what seems to be happening and number four some of these stocks have been used as pump and dumps where they've been promoted across Facebook Twitter WhatsApp Telegram and this has resulted in a lot of people buying But ultimately the Insiders dumping shares or the people that held before the pump began so these are the four common characteristics I've been seeing that for me make some of these what is basically a no-brainer setup to trade to the short side but there's a problem when the drops began they happened really quickly it's like instant so when the Pumpers start dumping their shares the stocks almost immediately get halted going down on a circuit breaker halt because they drop more than 10% in one candle so if we go back here y to this one more than a 10% drop in one candle and what happens is the stock doesn't keep going lower it's halted just like that so it gets halted for a period of five minutes when it resumes there's no one buying right here it often resumes way lower and immediately goes down into another Hall and so the problem here is that I found it's difficult to jump in these once they start dropping you can either be shorting as soon as the drop begins which means you're sort of jumping on the trend but good luck getting filled and then the alternative strategy is to short to be shorting into strength and then waiting for the dump and this means you're timing the reversal so shorting into strength means you're expecting this big drop right here but you know that it's going to happen so quickly that all of a sudden in almost an instant it's going to be down here so if you're waiting for this to start happening you're going to end up chasing it with an entry down here now part of me felt like chasing it's not that bad because the some of these are dropping 80 90% in one day so you can afford to chase it a little bit but nonetheless it would require chasing and then so the alternative is as it's moving higher to start selling a little bit here to start selling a little bit more here as it's going up to try to predict the reversal but what if you started selling way down here right you start selling too soon and now you're getting squeezed to the short side as the price is moving higher so this has really presented a little bit of a challenge as to the best way to trade these now on chsn this one I knew it was coming I knew the dump was coming we had this sort of slow move up here from a dollar up to four up to five up to six up to seven to eight nine 10 it kept going higher and higher and I knew it had all the trademarks it shared all the common characteristics of being a high likelihood candidate for a dump and so I started kind of watching it and stocking it I had it up on my charts and I was just like I'm going to wait for the day it reverses look I don't want to short it right here and have it go you know 100% higher because then I'm going to get squeezed I'm going to take a loss so I was trying to time my entry now you did have this extension candle here and then on this day right here we get this drop now on this one a 5,000 share short position would have produced an $80,000 profit now I'm often trading with 5,000 as a starter position 10 to 20,000 is full size a 10,000 share position could have net $160,000 of profit so this is where I'm like okay there's some serious money on the line here and I'm missing it and it happens basically in one day we get this huge drop and then they more or less go sideways from there sometimes they continue a little lower sometimes they bounce a little bit but a lot of them don't bounce because they're not very good companies they don't really have a reason to bounce why they went up this much in the first place a lot of times is because they're getting pumped on telegram WhatsApp Facebook Twitter etc etc now look as a long bias Trader I jump on the trend if something is moving higher all I want to see is that it's moving if we've got movement if we've got that volatility I'm a buyer on these pullbacks now if it's a Chinese stock I'm still going to trade it I'm just going to manage my risk and be careful and historically this is where I've made the most of my money buying these pullbacks and selling as it goes higher but historically we weren't seeing 80 to 90% drops in one day those types of drops have been I mean a little alarming but they also represented what I thought would be an opportunity so I knew it was coming on chsn and I was basically ready and waiting for my entry I was waiting for the day it started dump but in order to short chsn I needed to know the following information I needed to know whether it had short sale restriction I needed to know the availability of shares to borrow and I need to know the cost of shares to borrow so short sale restriction and the platform that I use puts it uh in this little box right here CB CB is their abbreviation for short sale restriction even though it's not really an abbreviation for that and c and b don't equal SSR in any case that's what they use it's for circuit breaker but when short sale restriction is turned on it does something interesting which means you cannot short by selling at the bid so you cannot create a short position by selling on the bid when a stock has short sale restriction which means the only way to short is to short at the ask price in other words you have to short on the ask on an uptick so shorting into strength is a very common practice for a stock that's on short sale restriction but it's also difficult because as it's going higher and higher you may feel nervous shorting because of how much higher it could go against you but once you've got short sale restri you cannot hit the bid so right here when we were about to break down this is the place where a a buyer might sell but a short seller cannot hit the bid and go short right here they have to be on the ask which means they can only short when someone buys the shares they're selling this was implemented to try to prevent flash crashes to try to produ uh reduce volatility to the downside look after all although Short Selling is legal it's not in the interest of companies to H to have the potential really that short sellers could make their stock drop 90% in one day it's not in the interest of the company it's not in the interest of any of the shareholders thus it's not really in the interest of regulators to allow that type of thing to happen so there are some restrictions that prevent Short Selling and make it more difficult which is always been a little bit of a hurdle with a short selling strategy it's just things that you have to face but in light of these huge moves we've been seeing to the downside I felt that it was time that I start to face those challenges and and persevere okay so short sale restriction will um will be displayed in the top corner of my level two window when a stock has short sale restriction and it occurs when a stock drops 10% now it's when it drops 10% versus the previous days close this is what creates the short sale restriction so what we will sometimes see is for instance I'll draw this out so you can see it clearly a stock yesterday you know we'll have a nice move a nice move and then pre-market it dips down a little bit and it pulls back 10% versus the yesterday's close previous day's close and then it opens right here now it opens right here and it could squeeze straight up now that's totally fine but of course if it starts to go lower if it starts to form a red candle the short sale restriction SSR is going to inhibit people stop people from hitting the bid and selling and and sort of pushing it lower they can only sell on upticks when people are buying your shares from the offer so as a result short sale restriction does make it more difficult to short these types of stocks and naturally as soon as you have that big drop if this was a daily chart as soon as you have that big drop the second you're down more than 10% % of the previous day's close short sale restriction is going to be activated and so for the rest of the day it's turned on for that stock and this means that generally as soon as you have your first halt down on one of these you're going to have short sale restriction and the only way to short it is on an uptick and you're not going to have a lot of upticks because no one wants to buy you know a Chinese stock that's dropping at the very beginning of the drop when everyone knows that these can drop 80 to 90% in one day now for what it's worth most midcaps and large cap stocks are easy to borrow the E here stands for easy to borrow so you can short it and there's two things here you can short it easily you can you don't have to borrow shares you don't have to pay any money to short it you can just go negative the position and instantaneously you're short the stock I'll show you what that looks like I'm going to pull up my live trading platform here just for a second um so I have two accounts as many of you know I have one account which is my retirement account which is right here $6,000 of profit today this account is totally tax-free but I cannot short any stock even though I could pull up a stock like apple and I could see that it's easy to borrow you are not allowed to short in a retirement account and the reason is because when you short you expose yourself to potentially an infinite loss I mean it's not going to happen but if you shorted even just one share and apple went to a million dollars a share you would have to buy back that share that you borrowed and sold to the short side to close your position when you buy Apple to the long side the most you can lose is the amount of money you put in and that's the way you're allowed to trade in retirement account because in a retirement account we have a limitation of our annual contributions and you can't be in a situation where you're forced to contribute more money to meet a margin call because you shorted a position so no shorting in a retirement account but I have my main account for that I could use for shorting now my main account doesn't have any trades in it today because there's no reason to take a trade but let's just say for instance I want to short um Apple so I can I can short right here and I now have a negative position and I'll show you my position window here so see how this shows a negative position of one share I have a negative position and now as the price goes higher I am losing money right I want the price to drop but if the price continues going higher I'm going to lose and I'll lose more and more and more and more nonetheless this is on uh it's easy to borrow it's not on short sale restriction so it's very easy for me to Short it now I can buy this here to cover my position and I took you know a one-cent loss okay no big deal that's not too serious but let's see if we can find another one um let's look at mdia now mdia has the CB which means it's on short sale restriction and it says I have to locate shares so l l right here means you have to locate shares they are not easy to borrow but they maybe can be located by your broker so the way I would do that is I would pull up this window which you can see right here I click borrow I click locate and they'll tell me the price so they can say we can get you 100 shares of mdia for uh one penny just about one and a half pennies per share so that means borrowing a th000 shares on this would cost um approximately $14 which is not it's not a lot of money uh but as you could see here on the screen there will be times where you click the request to borrow and they'll say symbol not eligible so the issue here is that there's a limited amount of inventory of shares available to borrow when a company does its initial public offering they sell shares onto the market those are shares that people can buy and they can own now if you own shares you can allow your broker to lend your shares out to other people and other people will go take your shares that they borrowed from you they'll sell them in the market but they owe you your shares back so they have to give the shares back to their broker and the broker gives the shares back to you so this is the practice of lending shares out to be borrowed now the problem here is that when you have a small cap stock the total number of shares in the float that are available to trade could already be very limited there might only be a million shares available to trade and then the number of shares that are available to borrow is an even smaller number so it's a small handful of clearing firms that have these shares available and they make them available to the different Brokers now the problem is that when the stock starts dropping all of a sudden active Traders like me are clamoring to locate shares so we can have shares that we can trade once you locate shares you can trade that number of shares all day long and if you hold the position overnight then you could keep trading with them tomorrow the next day if you'd like but the problem is when everyone's clamoring to get those shares two things happen number one the cost to borrow those shares starts increasing and it can get very expensive and number two the inventory gets smaller and smaller and smaller so the price is sort of Dynamic to the amount of inventory that's left so if you pull up the price of shares to borrow and you see the price is really high it probably means there's only a very small number of shares available to borrow now there's a couple challenges with this one challenge is that let's just say for instance you're going to take a position where you're going to take a starter but you know you're going to have to add more shares as the price goes higher well you better make sure you reserve all the shares for the total position that you're planning on taking because you may be able to get shares here but as the price goes higher inventory becomes unavailable and now you cannot scale into your position you cannot add more shares and now you're stuck this is your position way down here and now it's like well finally it drops but I'm only getting outbreak even and if this was only a starter position of let's just say 100 shares and you are perfectly happy to take a th000 well then you really should have borrowed a th000 to begin with so you can start with the 100 and then scale in as the price goes higher so there are some challenges with shorting as I saw with chsn Shares are in the highest demand where they're hard to borrow and expensive when volatility is peing the cost is priced per share which means for example reserving 5,000 shares to short at a rate of 20 cents a share would cost $1,000 every day in fees now you know I trade with 5,000 to 10 15 20,000 shares which means I could be spending up to $4,000 a day to borrow these shares that means my first 20 cents of profit is covering fees holy smokes okay well I guess though if it's going to drop potentially 80 or 90% I'll be able to make up for that now reserving shares early each day is costly if you don't end up taking a trade so the shares like on something like chsn each day as it was going higher there was the opportunity to borrow shares early in the morning when they weren't as expensive but that was going to incur a daily fee and it was like do I really want to be paying this daily fee not knowing how much higher it's going to go if I do that for 10 days in a row then next thing you know I'm already down5 or $10,000 reserving 5,000 shares a day for 10 days before I've even had a chance to have a winning trade number four if you take a position and hold for several days you have to pay the borrowing fee daily so each day you're paying the borrowing fee and number five if you wait until the stock begins dropping well now you've got to deal with short sale restriction so shoot this is getting challenging it felt to me like adding short into strength when demand for shares is lower made sense because I could take a starter I could add a little higher add a little higher add a little higher and by doing that I'm not dealing with short sale restriction I'm borrowing shares at a time when the price is lower but I have to leave myself room because I'm literally shorting a stock that is moving higher right seems risky but given the challenges with shorting once the drop begins it felt like the only way I could participate and I just felt like I knew these were going to drop I knew chsn was going to drop I had my orders ready to go I was ready to short it but then when it started dropping I couldn't get shares to borrow so I had the setup it was like like right there and then I couldn't follow through with it I was too slow other people had gotten the shares before me so adding is something is going higher seems to work well until it doesn't uhoh okay so here's an example where this stock went from $20 to 40 and to 50 and then to 100 and then to $200 and then to 300 to 400 to 600 to 800 to 12200 all the way up to over $2,500 a share which means a 5,000 share short position would have produced a 12.5 million loss now in my entire career I've made about $ 122.5 million in gross profit that's in my entire career of course I didn't do that on one trade and I would never want to empower one trade with the ability to take back everything I've made in my career if I had taken a 10,000 share position on this one I could have lost $25 million now of course that only would have happened if I didn't cover the position if I just kept holding and holding but the challenge with these is that as they go higher this is what you start saying you start thinking well it's going higher it's only going to be an even better reversal and this is what what's happened to me is I'll start shorting and it goes Higher and Higher and Higher and I'm like I'm going to keep adding because it's it's going to reverse they don't just keep going up forever they never do look at this chart this went to $2,500 and then back to three they never keep going up for forever but you know what the people who can really the only people who can really trade these are people with a large enough account that they can keep adding that can stomach the loss and continue adding adding adding until you get the reversal that's the only way to trade it but that's not going to be most of you and it's not me either I can't just keep adding and adding so this went from $20 to 2500 per share yikes now Brokers will Auto liquidate your account if your loss exceeds your account value and when that happens you're out of the trade now GameStop so gme GameStop and you guys remember this it went from what what was it $78 a share up to $500 a share this resulted in Melvin Capital losing $6.8 billion now they got a bailout C I'm pretty sure it was Citadel came in and loaned them a couple billion dollars of money and it wasn't enough now it's it's it's a little bit unknown exactly what happened there we know that Citadel we know that Melvin Capital blew up the the the the fund closed after this it was such a catastrophic loss one trade one bad trade blew up the whole account $6.8 billion doar so even people with billions of dollars cannot afford to just keep adding and adding and adding because what if this had gone to 700 to $800 to $1,000 a share to 2500 it had the potential to break the whole Market this brought the system to its knees I mean this literally cost short sellers billions and billions of dollars so this made me re think a little bit the strategy of adding as something was going higher so given this waiting for the reversal to begin feels safer but that does mean chasing the drop a little bit and potentially dealing with short sale restriction again nonetheless when we have these stocks that have been dropping 70 80 90% in one day I felt like I could afford to chase it I mean pretty much every time I was looking at these Chinese stocks I was I would start looking at it and it would just drop another 50% it would keep going lower and lower and lower so even though when I was looking at it I felt like this is kind of chasing it here they kept going lower and I was like all right it's a no-brainer these are I I have to participate in this move okay so we had chsn and I missed it and I was so annoyed and I was sitting here looking for the next one and I said what I'm going to do I'm going to look for the next one and I'm not going to try to short it into strength you know I'm not going to be selling selling selling as it's moving higher I'm not going to do that I'm not going to you know take the risk of potentially having one go to $2,500 a share on me or something crazy like that what I'm going to do and I'll just draw this all over again is I'm going to let it go up as much as it wants to go it wants to go from $5 to 20 it wants to go to 50 wants to go to 200 wants to go 2500 I don't care I'm going to wait for that first candle to start to go red I'm going to wait for that first day where we get that first halt down and then that's where I'm going to lean in and that's where I'm then expecting boom this drop so that was my plan I said I'm not going to chase it I'm sorry I'm not going to um uh sort of average into it I'm just going to wait for the reversal and that point go short and that's when ZJ yl came around so this one wasn't on my radar I didn't have it on my watch list um I the move up hadn't been super dramatic so I hadn't really been paying attention to it you could see the previous days the volume was pretty light so it just it didn't didn't make it to my watch list um in any case but then all of a sudden it halts down once it halts down a second time halts down a third time halts down a fourth time halts down four times in a row and I'm looking at it and I'm like you know once again I I'm looking at it and I'm like well gosh the volume is really light on this so it halts down once I didn't even notice it I don't think anyone was paying I think this first candle had like 25,000 shares of volume it had no volume no one was really looking at it then it holds down a second time and a third time and someone says hey you know uh this Chinese stock is dropping and I'm like okay well what's the price I'm like okay so around $20 these have been dropping to like23 a share so I'm thinking this still has a lot of room in it and I'm starting to look for the opportunity I'm like okay this is time to go short now what ends up happening is it halts down 1 2 3 four times in a row and then it halts up once and uh there were some traders who said I'm going to buy the dip and I was like H okay you know whatever do do what you like but what tends to happen on these is they halt up and then a lot of times they actually end up opening flat or even lower and it's like that was just a little reprieve before the selloff continues um but in this case it halted up at 12 60 12 about $13 a share and then showing a $22 resumption so it's like whoa that's a 10-point gap that's crazy so now if you were short on these candles with 5,000 shares as a starter like I was planning to do I was planning to be short 5,000 shares of the next one and then add to 10,000 all of a sudden now it's you're showing a gap up at $22 it resumes from oops sorry so it resumes from the halt up and it halts up a second time at $25 a share now the high of day was about 30 and it resumes at 25 and all of a sudden on the level two it's showing a resumption of $180 a share which is kind of crazy like this stock has never been at $180 a share before it's never been that high once ever it doesn't that doesn't make sense so initially you kind of figure this is is like some weird glitch what can happen when a stock is halted is that anyone can put out a buy order or a sell order and if there's more buy orders that are placed than sell orders then the price is going to show a higher resumption than when it halted it's called a gap they Gap up they gap down so typically when stocks halt up they open higher typically when stocks halt going down they open lower so we saw the halt down once open lower halt down twice open lower Hal down three times open lower Hal down four times and the reason it kept opening lower because there were more sellers than buyers people were wanting to sell it now this did go on short sale restriction very quickly and so into this first pop people are selling so there are buyers but people are selling short into this first pop because they want to get short and that's why a lot of times when they open they do open even lower and they keep going lower this was such a surprise that it open that it was showing a resumption of $22 a share and then it halts up at 25 and now it's showing a resumption of $180 a share and people are like wait a second what is happening so let's just do the math here for a second so you know let's say that I filled minus 5,000 shares at a price of 12250 so I I'm now short at 1250 5,000 shares when it's showing and this is this is my average cost average cost here so the market will show you the last price so when it was showing 2250 my p&l was showing would have been showing minus $50,000 oh my God minus $50,000 that's crazy right now when it was showing 32 I was showing minus 100 Grand when it was showing when it was showing uh so that was 12250 that was 2250 then it was 3250 4250 is 200 Grand 5250 is 300 Grand 6250 is 400 Grand all right so now it's showing literally $180 a share I'm already showing a loss that's deep into six figures which would be the biggest loss I've ever had and this happened to Traders and so all of a sudden they're like well what what the heck am I going to do it's it's still showing $180 resum resumption so now it's showing 180 and then it goes up to 200 then showing a $200 resumption all right 2 * 5 that's a 1 million doll loss you're showing minus $1 million p&l minus1 million and then it shows $300 resumption and then it shows $400 resumption and then it shows A500 $ resumption now you're showing $ 2.53 million losses on just a 5,000 share position that's it only 5,000 shares that's your shares 5,000 share position if you were the person that took 10,000 shares $5 million and here's the thing there was nothing you could do there was absolutely nothing you could do because the stock was halted so why was it that all of a sudden it's showing such a crazy resumption I think what ultimately happened is that it first it halts up once and then it resumes a lot higher and some people maybe covered immediately and bought back in they're like oh my gosh I got to cover my position take the $50,000 loss right away but other people kept adding and they're like nope it's going to pop and then it's going to go even lower because this is a Chinese stock and this is what they always do so people more people probably added here so now they've got 10,000 shares when the average cost is 1750 or something like like that and now when it's showing a resumption of 5060 $70 a share well hold on a second let's just say for example that in their entire account they only had $250,000 that was their account balance so when it's showing a $1 million loss they've got a big Margin Call so a margin call is when the broker says hold up we have an account on our platform that's showing a $1 million loss even though they only have $250,000 in the account that means the broker is $750,000 on the hook right now and what do they want to do they want to minimize that loss they want to get you out of that trade and so what are they going to do they're going to press the buy button they're going to press the buy button and it's the current price 200 doesn't matter they're going to press the buy button to get you out of the position that's what they have to do that's their risk protocol it goes to 400 doesn't matter they have to get you out goes to 500 doesn't matter so the reason all of a sudden we were seeing the price go higher and higher and higher and higher was because I suspect Auto liquidate so you had all of these people who were getting autol liquidated and the Brokers are just clamoring to buy by bu by buy and there's nobody selling because this is one of these small Chinese companies and there's no one selling no one's no one's trusting it to short it it opened at $500 a share right there it opened at 500 and although it dropped and cam back up uh came back up it held at 300 and it ended up holding at $200 a share for for like over 3 months if you had had 10,000 shares you would have lost $4.8 million and there's nothing you could have done about it because it gapped 480 points inside of a halt now I'm going to be honest that should never happen that should never happen that's insane but what are you going to do about it what can you do about it there's nothing you can do about it that's reality there's nothing you could do about it could you sue the company it's not the company's fault could you sue your broker it's not their fault you're going to sue the entire stock market there's nothing you can do with it you're out of luck you lost $2 million $3 million sorry that's the market and that happened there are some people that lost millions of dollars on this there are some people who bought at $500 a share and they were buying to cover now there's some people who sold at $500 a share who bought the dip you know just thinking hey maybe it'll bounce up a little bit and for what it's worth uh for them when they bought the dip at 1250 the most that they could have lost is if it went to zero that's the most they could have lost but when you short a stock at 1250 the most you could lose is it goes to Infinity in fact there is not a cap to your loss so how's a stock go from 25 to 500 short sellers got squeezed shareholders who are long they canel their orders to sell market makers they pull away from the market so market makers who are typically sitting on the bid in the offer they cancel their orders they don't want to risk it so they cancel their orders their orders are gone Brokers activating the autol liquidate to buy at any price to close out creates a huge imbalance between supply and demand and boom so shorting exposes you to unlimited losses with an Asis unless you hedge your position with options and you could do that with GameStop so hedging with options is is complicated and most people are not going to fully understand it you can hedge with options both to the long side or the downside so just for instance let's say you know you really like apple um you like Apple stock at $18 a share and you want to buy $10 million worth all right so you want to buy $10 million of Apple you know here $18 a share but you're like well I don't want to lose too much so let's say I don't want to lose more than 10% of my position 10% uh sorry that's a little funny 10% so what you do is you say all right I'm going to um go ahead and I'm going to buy puts at $62 strike price so you buy the $162 strike price you buy the puts and that gives you the right to sell that person all of your shares at 162 you're going to pay the premium for it but but it is Insurance you've now capped your downside at 10% boom you paid a premium for it you capped your downside you can do the same thing with shorting you use options to cap your your downside so there you would do calls so you would say I'm going to short this stock at you know whatever $100 and I'm going to buy the 120 calls that way I have the right to buy back to cover my short and now you've you've got a hedge on your position so you could do that with um you know with with GameStop and people did but the big big Traders the multi-million dollar Traders there's not always enough options to hedge your position there's not always enough people selling and writing the options for that position and unfortunately the second ASP here is small caps like ZJ yl don't have options so you can't head your position so you actually don't have a way of capping your loss in that situation and this is I've known this for a long time but most of the short sellers that I've known eventually blow up their accounts due to one bad trade like a ZJ yl like a gametop like in HKD and it even even Traders as big as Melvin Capital who lost nearly s billion dollars even they blew up their account as a short seller because you have this incremental progress and then in one day boom incremental progress and then in one day it's gone incremental progress and in one day it's gone and it just happens again and again until you get the one that you cannot recover from and I was so close to getting caught sh zjl that could have been really really bad so I felt like this was a sign from the universe because I had just missed my trade on chsn because I couldn't get shares available no shares available to borrow and then ZJ yl I was going to Chas it but I sort of missed it whatever it it happens so I just through through sheer luck I don't even know exactly what happened but I just I I missed it I didn't get I didn't get the trade and then all of a sudden it goes up to $500 so why was I even considering shorting in the first place well you know to be fully transparent we were two years into a bare Market at that time I had turned an account with less than $600 into more than uh 10 million in net profit net of fees and commission so 12.5 gross uh 10.5 or so almost 11 net which is fine and I was making money but I wasn't making as much as I was before and I saw a pattern I saw a pattern that kept happening it was happening again and again and again and I felt like you know it would be stupid for me not to try to participate and that was really close because although there is a pattern there and although a lot of people have made money shorting some of these Chinese stocks let's not forget that in my experience all the that profit shorting eventually goes back to the market in one trade until they're gone they're like well I've been doing this for five years I've got nothing to show for it because of this final loss that just wiped it all out and the ZJ yls the hkds the the GameStops they can just happen so quickly and you're out of control I think that for a lot of us there's an emotional inverse thinking that happens where we'll say if I'm not doing well long I should just switch to short like it's kind of like black and white thinking you know and whenever you're getting into this kind of thinking I feel like that's a sign that you're a little bit emotional where you're like I always lose I never win like that's not true always never that's those are like very you know so like I feel like the same thing is true I I well I might as well just short everything that I'm been buying and I would have made money and that's not exactly true because of course remember a big variable is spread if you're always buying at the offer and selling on the bid you're always losing in the spread if you're shorting and you're always shorting on the bid and covering on the offer you're going to lose on the spread so it's not necessarily just oh if I just did the opposite I would have made money I think that's sort of a emotional um way of thinking but I understand why some people do it they're like I'm losing money long I'm going to flip short right um but perhaps the better solution is getting better at timing entries and exits and managing your position sizes and cutting losses on the long side now when I look at the most successful traders in the market I ask myself are they long or short and they're long so what I've been doing is I've been using adaptive position sizing based on performance and that has really helped me trade better to the long side even during difficult markets I feel like even though I have more than a decade of experience I can still get better trading to the long side there's still more room to grow and although trading to the short side in some ways feels more logical than trying to venture into trading I don't know futures or crypto or Forex or something like that the risk in trading to the short side even for me is not acceptable I can never allow myself to lose 25% of my net profit of all time in one trade I can't do it I just can't I've come too far I've made too much I couldn't handle it so I can't trade a strategy that carries that type of risk and to be honest even a beginner Trader if a beginner Trader got short ZJ y HKD or GameStop not only are they losing losing their whole account they now owe their broker money so I feel like even for beginner Traders it is just way too risky so I made this decision that I'm going to short and then the universe came and showed me ZJ yl and I said you know what I'm going to I'm going to listen to that warning sign I feel like that was a red flag you know I feel like that was a sign and if I don't listen to it I'm going to fall into this trap and I can't let that happen and my hope for you is that perhaps you in a similar position where you're like all right man I've been thinking about shorting and I'm not trying to discourage you from Trading the market we're all trying to make money I get it but if you're not making money to the long side think about just the reality that who in the market is making the most money it's long biased Traders so what's the difference between what you're doing and what they're doing and then try to bridge the gap are you not quick enough are you too slow are you not good at cutting your losses for what's worth all those problems will carry over to the short side now shorting can feel more forgiving because you can keep adding you keep adding you keep adding and they'll come down you keep adding keep adding keep adding and they come down right it works and works and works until it doesn't and that's what happened on zjl it works and works and works until it doesn't so what I've been doing with adaptive um position sizing and and I feel like this has been working um really well for me is I've been starting each day with small share size and I kind of do this um this this bell curve um kind of like this where I start the day with a Max of 5,000 shares so my my full position right now is is about 20,000 shares uh occasionally I'll take 30,000 so 20 30,000 shares the problem was during the bare Market I was starting the day with that size a lot and the risk with starting with the 20,000 share position is you lose 30 cents and you're down six grand minus 6,000 to start the day right that's a terrible way to start the day and now you're going to be trying to recoup the losses you're going to be emotional you're going to be frustrated so what I say is you know what I'm going to put a little cap on I'm going to do something different I'm going to cap myself at 5,000 shares until I have crossed my first $1,000 of profit once I've made $1,000 the cap goes away all right the engine is warmed up we're ready to take the limit off and let's lean in let's be aggressive that is literally exactly what I did today so today on my first trade I um let me just flip this up so on my first trade today I made $134 is that a lot no it's not a lot did that stock actually have more room to the downside probably did but I took a small trade to the long side manage my risk made $134 and it didn't it wasn't a very good trade but it was a small winner second trade made $850 so now I've got $1,000 took my share size cap off LC comes up squeezes up over 100% 150 200% locked up $5,000 on it $6,000 boom I'm done my daily goal is $5,000 $5,000 a day that averages to over a million dollars a year that's my goal now it's optimistic I don't always hit it but that's the goal and I'm finding a lot more consistency by starting with small size and then once I've built my cushion leaning and sizing up and then what's important is that I size down relatively quickly now what I want to do is I want to trade well make as much as I can but once momentum starts cooling off I got to finish now I have pretty much a hard stop each day at 11: a.m. that's when I switch gears I work on classes I work on YouTube comments stuff like that and and this is also based on my performance that I make the most money before 11 so coming into 11 it's not really the time for me to take big risk and potentially go red so I bring my wrist back down so this has become a systemized a very systematic approach 5,000 shares to cross $1,000 if I never cross it I don't size up increasing size once I'm above that level to Max size trading aggressively and then if I give back 50% of my profits I walk away for the day I'm done if I have three consecutive losers I'm three strikes you're out three strikes I walk away especially not if they're like break even but if I have three decent Siz losses I walk away because that's enough to get me annoyed and if it's uh time getting too late in the day I call it quits and I say that's it I'm done and this for me it might seem simple but this is a way that I've been able to create a lot more confidence trading to the long side it's allowed me to test the waters a little bit and get a feel for is the market today hot is the market today cold you know what's how does it feel and if it feels hot if it feels like we've got some opportunity this is the day that I want to lean in I want to be aggressive if it feels cold I'm going to step back and go slow yesterday I only finished up a th bucks okay so it's a small green day but you know what that's what I want small green days and fewer big red days because this is the thing when you're trading to the long side you always know your max loss is the stock going to zero right ultimately your max loss is capped so if you start each day with relatively small positions your focusing on good quality chart patterns Candlestick patterns you can get a sense of like is it happening today yes or no and if the answer is yes it'll be reflecting your p&l and then lean in if the answer is no then you stop right then and there you never go up to full size you're not risking having a huge flush or huge draw down you're not averaging into a losing trade you're just cutting your loss and moving on so small red days small green days and then on the days when it's working you lean in and those days maybe they're only 20% of the time but they have the potential to produce 80% of the profit that's the 8020 rule so look if you found this episode helpful and you want to learn more I'll put a link it'll be pinned at the top of the comments and the description where you can learn more about my strategy and I hope you hit the thumbs up I hope you subscribe the channel because I've got lots of episodes about day training strategy just like this thank you as always for tuning in and I'll remind you as always that 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 and certainly if you trade to the short side so take it slow manage your risk and I'll see you here for the next upload real soon