What's up everyone? All right. So the title of this video is go Short Get Wrecked This is another installment of Driving With Ross All right. So uh, let's talk about it now. I'm making a couple episodes here because we have a stock that went up 978 today.

so this is a perfect opportunity for me to get on my soapbox and preach a little bit about why I think Short Selling is risky now. Listen I Know there's a lot of short sellers out there who are very profitable Traders And they're short sellers in our community who are very profitable. So I'm not trying to completely trash Short Selling Um in general, but there are some flaws to every strategy as you well know, and today was a good example of the big flaw in Short Selling And this is a problem that a lot of beginner short sellers struggle with. So even if you're a short seller I Hope that you find this episode helpful if you're a long Trader you're going to get a laugh out of it too.

So all right. Uh, today we have a stock that goes up 978 percent, starts at 55 cents, goes up to just under five dollars a share. All right. This is insane now.

a short seller strategy for a lot of small cap momentum Uh, Traders is basically as a stock is going up, start adding short. So short short short short as the stock is going up and then as it comes back down, the ideas to cover it for profit, right? So you start shorting a stock at a dollar, you add more to a dollar. Fifteen a dollar twenty. Just as it's going up, you're shorting, shorting, shorting, shorting shorting and then you're waiting for that reversal.

And you might say, well, why not just wait for the reversal? It's because those can happen so quick that you miss them. So why are people some people attracted to Short Selling Well, uh, aside, you know any any possible Jokes Aside Um, a real reason is that it feels easier for and for a lot of Traders And you know what? It felt easier for me, not just being a short seller, but being a reversal. Trader where you're shorting extensions or buying stocks that are weak. Why does that feel easier to me? When I was getting started early on, it felt easier to buy that first green candle after 10 consecutive red candles of a sell-off, then to try to figure out where to sort of Chase the momentum which in that case is going down so inversely for Traders who are shorting small cap stocks I Think a lot of them struggle with not being quite sure of where to get in, and they just kind of feel like they're invariably buying it high, so it just feels easier to just wait for it to top out and then to go short for the ride back down.

And that is true in some ways that that is a little bit easier, but there's no such thing as a strategy that's easy. You guys know this and and my strategy has its flaws as well. One of the flaws for my strategy is that I really require both volatility and liquidity and so in the last month we've been in a market where we haven't had a lot of liquidity. So and we've had a little bit of volatility, but without the liquidity, it been very hard for me to trade.

And you know, so I haven't done as well as I would do in a market where we've got high volatility and high liquidity in this. In the last six weeks or so, this has been a market that has been more friendly for short selling. Because stocks that start to pop up a little bit, they don't have that real strong wave of momentum behind them to send them to the next level. and so they kind of.

they go up. and they and they start. they just sort of roll back real fast. and so one of the things that, uh, that I've noticed is that there's been a lot of Traders on YouTube and just out there talking about shorting basically anything that goes up and so any stock that naturally I'm trading which I'm only trading stocks going up are the type of stocks that short sellers like.

Okay, that's that's that's what I'm going to focus on. this is going up long Traders are buying it. Let's start shorting. So we start adding a little bit and add more.

Add more, add more, add more. You know what that creates the balance of the market. and you see in this market where there hasn't been as much really strong momentum, there's a there's there's more on the sell side than there is on the buy side so that imbalance has pulled the range Tighter and you see these stocks rolling over. Now the thing is, if you're someone who's shorting really strong stocks and then you get wrecked, it's it's hard to feel bad for you Because listen, the strategy of just shorting something that is ultra strong, super super strong and adding adding, adding, adding, adding that is a hope based strategy.

You're hoping that it's going to reverse, but there's no I I Real identifier that it is reversing. It's still going higher and so top ticking. Top tick and top tick And top ticking is. It's like it works, It works, it works, it works, It works until it doesn't And so what? I've seen with a lot of big short sellers out there that try to employ that strategy is they'll They'll be green, green, green green green green and then they'll have a margin call and they'll blow up their account.

They fund the account again on their green Green Green Green Green Green Green Green green green green Green with high accuracy. but not exactly because they're cutting their losses quick, but because they can be stubborn. They just keep adding and adding and adding and adding. But eventually you run out of one of two things you run out of shares to borrow, or you run out of buying power, right? So availability shares to borrow is a real problem with shorting small caps.

and then the obvious problem of running out of buying power is um, of course makes it impossible to continue to add to your position. And so what we ended up seeing today was this stock that just went absolutely crazy. You know it goes from 55 cents up to a dollar and it had this period of really high volume between about a dollar, fifteen a dollar, ten, a dollar 25 and I mean like you could tell that people were hitting it short with 50 000 shares, 100 000 shares shorting really really big size and then all of a sudden it starts to break out and it goes up to 125 135 and I Saw probably for those that watched my other episode where I was talking about that um, the the Parabox squeeze It ended up going up to a dollar, fifty dollar, seventy, then two and it's just jumping higher. And now what's happening is all you're seeing are buy orders, their buy orders from two sets of people, their buy orders from traders who are chasing the move which are long bias momentum Traders And there's long buyers from shorts who are covering.

And then there's also long buyers who are brokers who are Auto liquidating like because you have a stock that's going up 500, 800, 900 and so there's this inherent risk with shorting something that's really strong. So I sometimes think to myself, uh, no, no to back up So I told you early on how when I was getting started I Thought reversal trading made more sense, but there's something that I did a little bit differently: I waited for confirmation. so I would typically wait for 10 plus consecutive green candles going up or 10 plus consecutive red kills going down. I would look for a bottoming tail doji or a topping tail doji and then that next candle to drop would be that's where I would take my entry with a stop at the High.

Now the problem for me with that strategy was that because I was being very particular about the setup I was looking for, there are sometimes days that would go by without having a really good short setup. you know I wasn't just adding adding, adding on anything that was strong or buying buying buying anything that's weak. You know, if you just start buying anything that's weak and it goes lower, it's like, well, yeah, because stocks can go a lot lower, right? Stocks can remain irrational longer than you can remain solvent. That's that old saying, so you know.

Bill Ackman shorting Tesla Getting squeezed? Well, you know that's what happens when you short. what in that time was one of the most popular stocks on Wall Street and on an intraday basis shorting a stock that everyone is focusing on that is super super strong. You've got to be able to cut your losses quickly. But again, this then gets into a challenge where when you get into these low liquidity traps, you can get stuck And so what I ended up finding was that in fact I found more consistency by focusing on bullish patterns to the long side, Because you know in the example of shorting a stock at a dollar that goes to four dollars, you're shorting a dollar.

Best case scenario: went to zero. You know you're up a dollar a share. Worst case scenario goes to five or ten dollars, you're down five. You're You inherently have a negative risk to reward ratio.

So on any given day when you're shorting something that's really strong. If you're stubborn and of course, good short sellers who end up having you know a lot of success and history of profitability, they naturally will still have this tendency of lots and lots of winners. A big loss. Lots and lots of winners being lost.

But other Traders can have that as well. The question is, how big is that loss? Are you cutting it before your account gets blown up? And if you are, then that's really, really good. If you're not, then this is clearly an area where there's room A lot of room for improvement because holding and hoping whether it's long or short, that's not a viable strategy. You know that that's luck and it works.

and it works until it doesn't. So you really have to get dialed in with the risk parameters of the strategy that you're trading. And so one of the things that I found and I found this consistently over you know, long periods of time has been that I have to be thinking about my stop before I take a trade. What's my stop? What's my stop? And unfortunately, in the case of buying something that's weak, that's selling off and I've done this before I buy something that's weak and it goes lower and it holds down.

and now all of a sudden it's gapping lower and I wasn't able to really manage my risk because there were things that were out of my control. The halts, the quick flush, and now I'm in a situation where I become emotionally compromised because I'm faced with a much bigger loss than I was planning for and I have to either cut it on resumption, In which case, I'm selling when there's no buyers. So I'm going to get massive slippage. And that's the problem with covering a short position as it's squeezing up like on Am today is that you're now covering when there's no sellers.

you're getting a ton of slippage going up all the way to the next halt. So I mean listen, these are the risks of trading. Trading is risky. A short selling I think is especially risky because you can lose an infinite amount of money.

but there are Traders out there who find success. Short Selling However, if you're someone that is just shorting anything that's strong I think that you've got to really look carefully at that strategy because what I'm afraid is going to happen is you're going to keep doing that and you're going to keep having these stocks like this one today. But it happens. You know? we had Hudi and Satx and HKD it it doesn't feel like it makes sense for there to be a percentage of the time where you are blowing up.

you know for me as long bias Trader I'm not going to say I haven't had big losses because I have. However, my biggest Green Day is much bigger than my biggest red day and that I was talking with um Jess today those guys 500k badge his biggest Green Day 63 000 His biggest red day is 17 000. All right, so that that's I mean you can work with that. That makes sense Now at the end of the day biggest biggest red day, those are just two days.

What are your at? What's your accuracy? what's your profit to loss ratio. But those are two things that are really interesting and I could save it for another episode. but I'll just quickly say that there's a relationship where traders that have really really good profit loss ratios usually have lower accuracy as they're swinging, usually for home runs, but when they hit, they get that big winner. So their profit loss ratio is phenomenal.

But you know out of 10 trades where you swing for a home run, maybe only three of them connect. So you can have a great profit loss ratio with 30 accuracy and still be a profitable Trader If you're okay with being wrong 70 of the time and you can brush it off because your stops are tight, you're getting in on support, whatever it is, that's fine. On the other hand, you have traders that have negative profit loss ratios where their average losers are massive, but their accuracy is like super super high and so again that that comes with a different set of challenges. You generally have high accuracy so you've got really high confidence, but then you know every X number of weeks you have a massive loss that wipes it all out.

Now what I had as a beginner Trader was a poor profit loss ratio and poor accuracy. So I was just struggling across the board. But I'll tell you for me, what helped me turn the corner was focusing on higher quality setups. and for me, I Don't like to take trades where I'm immediately going to be at the red.

That's really hard for me. so short sellers who are able to add at ad you're managing the loser the the first, you know the majority of the trade. in fact, until it resolves and I gave you a lot of credit for being able to do that because that's something that's really hard for me to do. I do not like trying to manage losers I want to get into a breakout trade and essentially if I time the breakout correctly whether it's a half dollar whole dollar or first calendar, make a new high if I time it correctly I'm going to be green almost immediately and and I'm not going to look back I might never be read on the trade I mean basically you know of course you get in, there's a spread, but I'm almost never read on the trade I get in at the right if and for me as a momentum Trader if my timing is right, I will not be right on the trade and so you know that that for me, with the strategy of really trying to manage risk, especially when trading in a small account, that was like the only way for me.

I just had to focus on really high quality. Precision Trading Get in, Get out. Boom Quick trade. Get in, get out Boom quick trade.

And you know that for me was really only Possible Trading To the long side. So you know at the end of the day your strategy is a reflection your personality. So you know I'm risk averse and I of course do take loss. But for the most part, as soon as I get into a trade I'm looking for it to be green.

a Trader who's a little bit more comfortable losing may actually have more upside potential long term In their career, you have to be willing to take risk and I need to get a little bit better at that. And if I do get better at that, I might be able to have some trades that end up turning into some really, you know, nice winners because I was able to be willing to hold through a little bit of pain. So you guys I'm sure are going to have some comments on this and you know, do as you'd like. If you want to keep shorting strong stocks and you're willing to take that risk, go for it.

You know we need short sellers in the market. A short seller shorting strong stocks can create those parabolic moves so everyone has a place in the market. Um, and of course, if it works for you and you find success, you should stick with it. And I of course want to see people find success.

So you know, stick with whatever's working. But if you have something that's not working so well, you got to look really closely at that and back off of it. And it's also important to recognize that markets are always changing, so you have to be able to adapt to different markets. That's something I haven't done as well as I could I Could really do better at easing off the throttle, hitting stocks alongside.

when the Market's cold and you know what, maybe maybe there's a place for me to start flipping short on some of these setups. if I trade it to the long side going up, maybe there is a very obvious place to flip short or maybe in a cold Market When we're not seeing good resolution, it does make sense to look for some more opportunity to the short side. so you got to keep an open mind. All right? Well I hope you found this interesting and uh I will see you back here for the next episode of Driving With Ross Not sure when it's gonna happen, but um I'll be back soon so see you guys for the next episode.

All right, take it easy.