I often rant about “overly biased loud mouth shorts on twitter” and because of these rants get a fair amount of guff in return from traders that seem to think “short and hold” is a viable strategy for new or small traders. I’ll be the first to admit my motivation can be very “white knight’ish” but at the same time the primary rational behind my defense of the small and/or new trader is we are talking about a public network, Fintwit. Am I anti short selling? Nothing can be further from the truth. Am I anti using a large twitter following to convince small traders that if they just “keep holding” the rewards will come? Yes.
There are typically two profiles that describe the “overly biased loud mouth shorts on twitter” the first is the trader that swings a big line and can short the front side and keep adding higher which creates the “you can’t squeeze me” bravado. Second is the fundamental short that will take a position early in the move and proceed to bash the stock 10,20,50 or even more times a day, offering constant justification and links to defend that this stock “cant possibly go higher”.
Phil aka “OzarkTrades” is NEITHER of these.
In this post I would like to address several great points that Phil makes and attempt to draw parallels to defend my point that shorting in today’s market is not very accessible to the new and/or small trader, and again while it is a viable strategy for new traders, should be avoided until the market changes. I have been actively day trading and short selling for close to ten years, the last 2 years have been unlike any market I have seen. So many low priced stocks go higher than you would have ever expected on Day 1, and so often continue over multiple days, weeks, and even MONTHS. If you are a new trader shorting small size or even worse shorting on margin, you CANNOT survive these moves no matter what the “overly biased loud mouth shorts on twitter” say.
My biggest month of the year was November with 1.3 million in gains thanks to the hype in crypto currencies. (No I do not trade cryptos but the equities that are tied to them) I was profitable every month in 2017 and again most of my money was made on the short side.
First off I would like to congratulate Phil on an incredible year! I have considered Phil a role model for several years and he is a great guy with honesty and integrity. Though him and I are are mostly “internet friends” we have met briefly several times and he is quick with a handshake and a smile and seems genuinely interested in conversations with any trader new or veteran. There is nothing I enjoy more than seeing people I look up to and my friends succeed. Since we have only met a few times, Phil may think the “friend” moniker is a little aggressive but oh well. 🙂
After trading for 11 years it is fairly easy to identify the top setups. The timing is obviously the difficult part.
This point can NEVER be stressed enough and I’m pleased Phil starts the post with this. All traders new, intermediate or advanced KNOW these stocks will ultimately fail. But what will happen between Point A – C and what will happen during Point B. That is the ultimate question in trading, particularly on the short side. It does not matter if Point C is ultimately a “zero” if your account becomes a “zero” during the B Phase. My perspective again to the new trader is, why not try and take a small part of the run up from A through part of B, take small gains, focus on wins and build your account, do not try to be a hero on the short side early.
Again, I’m a believer that the big money is in the big wins. Personally, I don’t try to hit it big every day or every week but I try to take full advantage of the 6-7-8 ect big setups a year.
This quote wraps up a GREAT paragraph on being aggressive and sizing into your favorite setups, which again is the golden rule of a advanced trader. But back to 99% of Fintwit, this 99% needs to focus on building an account and getting better at your process, trading 6 times a year it will be very difficult to build a small account. And of course I’ll get responses like “Don’t trade with a small account” But remember my point is we are talking about Twitter, the truth is 99.9999% of the traders on twitter are small and looking for ideas and help in getting better. I may be wrong but I don’t think many billion dollar hedge fund managers are coming to Twitter for trading ideas.
In 2017 I worked every single day even on vacation. Yes I bring a laptop even on vacation because you never know what could happen.
Sometimes it does suck to sit at the desk from 6am to 3pm (central time) waiting for that one stock to break but it usually always pays off, especially if you learn to take time off when things are not so hot.
Love both these points, if you are not 100% committed to trading your odds of success are exponentially lower. I read the opening line of this paragraph and chuckled thinking, “Been there, done what”. I also worked EVERY day of 2017. Including on vacation. Both Phil and I have young children and we both greatly value our time with them, but hey, nobody goes to the pool before noon anyway, and if you get up early before the family you can easily put in a solid day of work and improvement and still have 12 hours to spend with the family. Daddy’s got to pay the bills.
And it does suck to sit there all day every day, but as a trader you are “never done” and I’ve seen countless sniper analogies to the point of nauseam, and I’ve used them myself too many times. But if you are unwilling to train nonstop and wait for “the shot” consider another career. I NEVER get tired of studying stocks, studying other traders, studying myself.
There has been 1 big difference for short sellers in 2017 and that has been the dramatic increase in Htb fees and short interest.
Back to my opening statement, when I get asked “why do you bust short sellers chops all the time?” this statement by Phil may be one of the biggest reasons. Trading constantly evolves and changes, and I recognized a shift in 2016. I do not know the internal workings of brokerage firms, but I believe firms recognized the rampant demand of short sellers to get aggressive and “pay up” for borrows. I’m old enough to remember how difficult it was to borrow shares, particularly over multiple days and weeks. I think this seismic shift in short availability and willingness to pay these fees has created some of the multiple day and week squeezes. Therein lies my advice to the new trader, look to profit on the front side of these moves, recognize that “everyone” is short and you do not need a special brokerage account.
Again, the key is to cut those losses quickly and look for re-entry. Trust me I am the king of taking paper cut losses.
Always the “golden rule” of trading and it cannot be stressed enough. Although my point is, this is “easy to say” for a veteran. But if you are a newer trader on Fintwit and see “The fundamental short that will take a position early in the move and proceed to bash the stock 10,20,50 or even more times a day, offering constant justification and links to defend that this stock “cant possibly go higher”. I mentioned above, you will almost always form a bias, thinking “This trader with a large following knows his stuff, I’ll hold.” Be willing to trade your own ideas and stop out when your trade plan says you will stop out. I respect Phil for never going on twitter and bashing a stock no matter how positive he is in his thesis.
I still don’t understand why traders will start a short on the upside and say they will add higher. How did that methodology work on DRYS in 2016?
Ahh yes my favorite Twitter short seller quote “Will add higher.” Few things make me pound my desk in rage more than that saying. If you have a twitter account with a large following and are known for being a proficient short seller, posting this statement to twitter should get your fingers slammed in a door. What possible goal can be accomplished by stating this on PUBLIC NETWORK? In my humble opinion this phrase is only used in a malicious manner. We all know early shorts will get squeezed out and add fuel to the fire. Best I can figure the only justification for this statement is hoping to torch small traders to accelerate the upside move so that said large trader can create a greater trade opportunity for themselves. This may be the single biggest takeaway from my writeup, if you are following big name traders touting the willingness to “add higher” proceed with caution my friends.
If we have a low float that is being manipulated, then being stubborn will just get you run over.
As a new or aspiring short seller please avoid “float rotating” stocks. There are so many other stocks to short and so many better times, when the volume has dried up. Be patient, wait and you will be rewarded, but if you are shorting on days the float is rotating I wish you luck, you will need it.
Phil wraps up the post with some great advice on being diversified and having backup plans. I’ll let you refer to the linked post above, some very solid advice and I recommend reading and re-reading his post.
In the end my point is, be inspired by the amazing possibilities in trading, we are in a market unlike any I have ever seen in my 10 years. Use these posts by great traders like Phil to plan for the future. But in the end, perspective is everything. Many of the trades and techniques he employs on a daily basis, including using 6-7 high minimum brokerage accounts, boxing trades, hedging with options etc, are not yet accessible to you as a new trader.
Learn charting, learn how to process the news and fundamentals and focus on making small and consistent wins on the long side of these fast moving stocks. After you are a consistently profitable trader with a medium sized account and some consistency and success under your belt, then look to be a “big swinging dick” short seller. But when you make that step, please promise me you WILL follow in Phil’s steps and NOT blast twitter with the “this stock is a zero” or “will add higher” nonsense.
Thanks to Phil for a great post.