Today we are going to give you some of the best short selling setups we use on almost a daily basis when the market gets weak. Here are the 4 short selling strategies we use, and videos about how you can trade them. There’s also real trade examples that show you directly how to apply them.

Earnings Breakdowns

In a bear market there will be a lot of negative reaction to earnings. Even when earnings reports are good, a stock will still often fade off in a bear market. Earnings breakdowns are one of my favorite setups, since they have such a strong negative catalyst behind it. Here’s how you trade earnings breakdowns:

The 2nd Day Continuation Short

In a bear market, downside momentum will often continue for consecutive days. The day after a big move to the downside in a stock will sometimes see great follow through as the trend continues. Here’s how you trade 2nd day continuation plays:

The End of Day Fade

Sometimes stocks will take a while to make their move to the downside. They will consolidate all day, and then at around 2-3PM start to break support and fade hard. This is a great late day setup to use in a bear market. Stocks tend show strong weakness towards the end of day as traders get margin calls during this time of day and get forced out of their positions. Here’s how you trade the EOD fade:

VWAP Fade

Stocks will often pop and retrace after a strong move to the downside. Often downtrending stocks intraday will pullback to their VWAP (volume-weighted price average), and then continue their downtrend after testing the VWAP. Shorting a pullback towards VWAP is a great strategy when stocks are in a downtrend:

Bonus Setup: Trading Inverse ETFs

If you are not comfortable shorting, there is actually ways to make money to the longside while the overall market is going down. You can do this through buying inverse ETFs, like TVIX, UVXY, and VXX. Here’s a video going into more depth on this topic, and using a trade example with TVIX:

Free Trader Assessment

Are you a current or aspiring trader looking for some feedback? Need a roadmap for what you need to do to get to where you want to be? Schedule a free trader assessment with one of our educational specialists today!

The post 4 Short Selling Strategies To Use In A Bear Market appeared first on Bulls on Wall Street.

Today we’re going to talk about the scariest phase of them all: The run-down phase. Also known as a bear market. We haven’t seen a bear market for around a decade. But there is likely one coming over the next couple years. Now is the time to study and prepare. The best traders actually make the most money during this period. You will see them in all financial markets so it pays to understand what they are, why they occur, and how you can trade them.

The Run-Down Phase

The run-down phase is a period of complete fear in the markets. Sellers are firmly in control. Once the supply of shares exceeds the demand in the distribution phase, the rundown phase. It is characterized by a series of lower highs and lower lows, and high volume sell offs. The news cycle is very negative, as longs become trapped, and there are bag holders everywhere. Novice traders blow up as they try to catch a falling knife and average down.

Bear markets occur every 6-10 years in the stock market. They do not mean the end of the world is coming like the media portrays it. Everyone who doesn’t understand investing is scared. Logic does not rule this period, and everything goes much lower than everyone imagines. Often climatic selling and the bulls giving up total hope coincide with the end of the run-down.

If we start to see higher lows for an extended period of time the market may be entering the accumulation phase. If the market starts to see higher highs and higher lows, there may be a full on reversal into the run-up phase. Here is how you should trade during this phase so you don’t lose money like everyone else.

How To Trade This Phase

This phase is a short-sellers dream. Gap ups in the market are sold into hard. Gap downs always follow through with more selling. Even good news and earnings reports cannot get stocks out of their downtrend in a bear market. Everything will fall further than you expect. The last thing you want to try to do if you’re an inexperienced trader is to try to a catch the falling knife.

A bear market is actually great for momentum traders as a ton of volatility enters the market. Even in a bear market there is still opportunity for good long trades if you know the right setups. There is a lot of opportunity to both the short and long side. You can short breakdowns and strong rallies. You can also play oversold bounces as well if your timing is good. Understand that all long trades in the run-down phase have to be quick (we’ll give you the exact setups we use in the webinar).

Remember bear markets don’t last forever. Do not do what everyone does during a bear market and panic sell. The whole point of understanding market cycles is so you understand that every phase doesn’t last forever. If you do what everyone else does let your emotions take control, you will lose a lot of money.  

This is a SPY chart from 2008 and early 2009, the last bear market we had. It was a short bear market compared to past ones, but it still resulted in around a 50% pullback in just 8 months. You can see how much volatility came into the markets once the $128 support level broke. Also notice how much volume came in as the market more or less went into free fall mode for a period in October 2008. Once we bottomed, we transitioned straight from the run-down to the run-up phase. 

If you missed yesterdays article talking about the distribution phase click here to read it.

Free Live Trading Webinar TONIGHT and Tomorrow 

We will be going into much more detail about the run-down phase in tonights webinar. With the current state of the market, this could be the most important webinar you attend.

Sign up for the webinar here. 

The post The Run-Down Phase: Mastering Market Cycles Day 4 appeared first on Bulls on Wall Street.

Every single trader makes mistakes. Usually on a daily basis. And often it’s the same mistake that you’ve made 100’s of times before.

Why? Because no matter how experienced or rich you are, we are all human. This means we all have the same weaknesses, and are subject to the same emotions that are harmful to trading success.

The difference between winning and losing traders is how often you make these mistakes, and how much money these mistakes cost you. Here are 3 trading mistakes that every trader will make, and what you can do to avoid them:    

Sizing Incorrectly

Sizing your positions correctly is one of the most important components of profitable trading. A common issue most traders have is that they put on too much size at the wrong time. They want a big winner, so they buy 1000 shares of a volatile stock when they have a $2000 account.

This causes them to trade emotionally and make incorrect trading decisions. They panic when their position goes against them because they cannot afford to lose the money they are risking. They take profits too soon because they are focusing on their PNL instead on where the market is heading. Trading smaller size will actually make you more money because you trade less emotionally.

In this PCG trade I took earlier this week, I shorted too many shares, and lost money because it made me emotional. Although I don’t have the small account issue, I’m still capable of making a gamblers mistake. If I had just scaled in and sized down, I would have not lost money and participated in great setup. Here’s a video recap of my trade I took in PCG:

Entering At the Wrong Time

The entry is everything in trading. The most common reason why traders will get a poor entry is because of FOMO. They were scared of missing a big move so they chased, and bought too high or shorted too low. Always remember that there will always be opportunities in the market every day. Do not get emotional about missing a big move. There will always be another big mover.

In my PCG trade, instead of waiting for the stock to pullback to the 9EMA, I shorted way too low and got terrible risk vs reward on my first trade on it. Stocks with SSR will usually squeeze before they head lower, and I got caught in the early squeeze. I was worried about missing the move down instead of getting a low risk entry near the 9 EMA. If I had waited for the right entry, I could’ve had a much bigger winner.

Taking Profits Too Soon

You will rarely be able to capture the whole move. Leaving money on the table is inevitable in trading. But you should strive to catch the majority of the stocks’ trend. Just because you made money on a trade does not mean you traded it correctly. Your goal is to try to capture at least twice of what you risked on the trade when you take profits.

Taking profits too soon has costly consequences for your trading. If your risk vs reward is poor, you will need to have a high win rate to remain profitable. 1 of your winning trades should be equal to what you lose on 3 trades. If you have trouble letting your winners ride, try to think of where the person with the opposite bias would enter their trade. If you are long, think of where someone would start in short. Be patient with your winning trades, and impatient with your losers.

Get 50% Off For LIFE 

For the next two weeks, we are offering a 50% LIFETIME discount off all chatroom subscriptions. Instead of paying $199 per month for either of our chatrooms, you will only pay $99 for as long as you are a BOWS member! The same applies to annual subscriptions!

Get 50% off our day trading chatroom by clicking here.

Get 50% off our swing trading chatroom by clicking here.

Deal expires on July 18th!

The post Simple Trading Mistakes That Can Cost You Big Money appeared first on Bulls on Wall Street.

There has also been serious weakness in the overall markets, so there have been numerous short selling opportunities outside of earnings breakdowns. In order to profit in the stock market this year you have to know how to short sell correctly. Here are 5 key things you need to know in order to short sell successfully in the present market conditions.

Be Cautious With Leverage When Shorting

You cannot get stubborn when short selling, especially if you are using leverage. Leverage is not necessarily a bad thing to use if you can manage your risk correctly. However, with short selling, you can theoretically lose more than what’s in your trading account if the stock keeps going up.

A stock can go up more than 100% from your entry, and that means you can lose more than what’s in your account and go in debt to your broker. If you are using leverage, the stock doesn’t even need to go up 100% for you to lose your whole account. Take a look at the chart of a recent runner CHEK:

If you started shorting at $8 a few days ago and didn’t cut the loss, you would have lost your whole account and then some when it went to $18+. Yes, it’s POS company that will most likely retrace back to where it came from.

But if you get stuck on the front side and don’t cut your loss, it doesn’t matter how bad the company is. The message is clear: You cannot afford to get stubborn when shorting. Small losses are your friend and are what allow you to live to fight another day and potentially make a big trade.

Pay Attention To The Catalyst

If you are looking to short sell a stock gapping down, you have to know what the catalyst is. Personally, earnings is my favorite catalyst because it usually has the cleanest follow through and the best trends. I know when a stock gaps down on earnings on a clean daily chart and gives me a setup, there is a high probability of the trade working out.

You want to be trading catalysts you are familiar with, and know that they usually follow through to the downside when they occur. For example, stocks gapping on M&A (Merger & Acquisition) news rarely follow through, and are usually just choppy. You need to study how stocks react to certain catalysts to assign the probability of a potential trade working out or not.

Know If Short Sale Restriction is On

Short sale restriction (abbreviated as SSR) can make it difficult for you to get an entry on a stock gapping down. SSR is turned on a stock when it goes down 10% or more from yesterday’s closing price. When SSR is turned on,  you cannot fill your short by taking liquidity and hitting the bid.

You have to put your order on the offer and wait for the market to uptick to fill you. This means you have to wait for the stock to spike a bit in order to fill your short position on a stock that has SSR turned on. You have to be patient and preplan your entries in order to get filled. You cannot short sell breakdowns on stocks with SSR, because it will be very unlikely you will get filled.

Pay Attention To Trend of Overall Market

Most stocks that do not have a catalyst on the day will follow the trend of the overall market. You should always have the SPY chart up when you are trading high beta stocks, like FB, BABA, and NVDA for example. This year these stocks have had some huge intraday range because there has been exceptionally high volatility in the markets this year.

They also follow the overall market trend very closely. You should always avoid shorting these stocks when the overall market is strong, and vice versa when it is weak. In volatile markets like the one we are in, stocks will always bounce higher and dump lower than you expect.

Know Your Stock’s Average True Range

You should always know this when you are looking to put on a position of a stock. Stocks that are trending down reacting to a negative catalyst will often trade outside of their normal ranges. But if the ATR of a stock is 1$ and it has already moved 5 points that day to the downside, it is not very probable it will continue going down.

Stocks that have SSR will reverse quickly so if you get caught chasing to the short side you can be underwater very quickly. You need to know the normal range of your stock on a typical day so you can know when you have meat on the bone for a potential trade. A stock like General Electric as a tiny range, and even on earnings it barely moves more than 50 cents a day. There is no range to capture in stocks like these.

6 Seats Left in Our Next Live Trading Bootcamp!

Our next Live Trading Bootcamp is around the corner! Learn from experienced stock traders have been trading for over 2 decades, and navigated the last 2 bear markets. Only 6 seats left, and space will fill up fast!

Click here to Save Your Seat for Our Next Trading Bootcamp!

The post 5 Keys To Short Selling Profitably appeared first on Bulls on Wall Street.