TLDR;
This video provides a detailed playbook for shorting penny stocks, drawing on the strategies of funded traders. It covers identifying setups like delusion plays and pump and dumps, analysing catalysts and price action, and managing risk. The presenter shares personal trade examples, common mistakes, and techniques for improving trading performance.
- Focus on specific setups like pump and dumps and delusion plays.
- Analyse catalysts, volume, and price action for informed decisions.
- Manage risk by starting small and avoiding hard stops.
Introduction [0:00]
The presenter, Mike, CEO of Trader Pool, introduces a webinar focused on shorting penny stocks, inspired by the strategies of successful funded traders on their platform. He shares his recent experience of taking on the challenge of shorting penny stocks for a week, typically trading large-cap stocks and futures intraday. The aim is to share insights and experiences gained from implementing the strategies of top traders like Sabrina, William, and Luke, who specialise in shorting penny stocks using various timelines and approaches based on catalysts and news.
Penny Stock Short Selling Playbook [4:51]
The playbook for shorting penny stocks involves identifying setups such as delusion plays, shorting after financial announcements, pump and dumps, and technical breakouts. These strategies are heavily influenced by news and promotional activities. Swing traders often wait for the first red day after multi-day runners to short the stock, holding it for several days.
Step-by-step Application [6:25]
The application process begins with scanning for setups, often pre-market, looking for stocks gapping up significantly. Traders then investigate the catalyst behind the price surge by analysing news to differentiate between events likely to cause a pump and dump versus those with more substance. Volume and price action are analysed to identify major resistance and support levels, looking for weakness in price action and determining stop-loss points before scaling in and out of positions.
My Biggest Wins [9:35]
The presenter shares four successful trades: DARE (a classic pump and dump), XXII (based on a collaboration play), VLCN (a technical breakout), and SBET. Each trade was driven by specific catalysts and resulted in significant profits.
Trade examples: VLCN [11:10]
VLCN's trade was based on the company announcing a $500 million investment from private investors. The presenter shorted the stock after it bounced from around $10 and rapidly moved upwards during pre-market trading. The entry point was determined by the stock's inability to break through a new high, combined with analysis of candle movements and a major liquidity level around $30. The MACD indicator showed divergence, further supporting the decision to short.
Trade examples: SBET [19:00]
SBET's trade followed a similar pattern, with the price moving higher before reaching a point where it should decline due to volume, capitulation, and price action at a major key level. The presenter shorted the stock during pre-market after it had risen from $37 to $43. Although there was no divergence in the MACD, the increasing volume at the top indicated that buyers were entering, providing an opportunity for sellers to short.
Trade examples: DARE [22:40]
DARE was identified as a classic pump and dump following positive phase three results. The stock had a significant move to the upside, but the presenter waited for capitulation, high volume at the top, and MACD divergence before shorting. A key resistance level was identified around $10 based on previous support and resistance points.
Trade examples: XXII [28:00]
XXII's trade was based on a collaboration report with tobacco companies. The stock popped from around $5 to $12, and the presenter observed that the upward moves were becoming weaker on the third and fourth attempts. High volume at the top, combined with MACD divergence, indicated that the price should decline. The presenter noted a resistance level around $13, where smart money was likely to drop shares or go short.
Common mistakes and lessons [31:10]
One common mistake is not leaving a runner, which means not holding a portion of the position to profit from further declines. The presenter admits to covering too soon on XXII, missing a significant drop. He suggests leaving 5% of the position initially, gradually increasing it as confidence grows. Another mistake is entering too soon, before all parameters align. The presenter also advises against going too heavy at the beginning, suggesting starting with a smaller size to allow room for adjustments if the price moves against the position.
Risk management, penny stocks shorts [40:00]
The presenter prefers managing risk manually rather than using hard stops, allowing flexibility to adjust positions based on price action. He suggests entering with a smaller size initially, giving the opportunity to add to the position if the price moves against him. Liquidity awareness and understanding the catalyst behind the stock's movement are also crucial for risk management.
Adopting techniques and community [44:03]
The presenter advises adopting specific techniques, starting small, and mastering one setup. He emphasises the importance of documenting trades and using trading journals to track progress. Trading with a community, such as the Trader Pool funded traders community, can provide support and insights. He introduces Trader Pool as a limited-risk trading platform where traders can get funded after passing an evaluation.