Intraday Short Selling Strategies

Intraday Short Selling Strategies

7 min read

I’m going to cover intraday short selling strategies that work for me. If you put the time and patience in to learn about short selling, it can work for you. Another plus is that you can trade in a bearish market. Which one could argue is coming or upon us now. Did you know that you can make money when stock prices fall? For proof, look no further than short selling?

Intraday short selling strategies allow you to make money on bearish moves. These are trades you typically want to open and close same day. When you short a stock, you’re borrowing shares to ride the momentum down. That means you never actually own the stock. Sounds a little weird right?

Did you know some brokers don’t allow shorting? Brokers like TD Ameritrade don’t. Whereas brokers like Interactive Brokers do. As a result, if you’re going to short, or want to learn, make sure your broker will allow it.

Then you should practice shorting at resistance and covering at support. That way you can see what the best intraday short selling strategies are for you. The more you practice, the better you’ll be.

A Teachable Moment: Why Volume Is Important

No matter what way you slice it, volume is just the number of shares traded during a given time frame. Depending on your trading style, it could mean the number of shares traded on the hourly, daily or weekly time frames. To that end, every stock experiencing a surge in volume will have associated volume spikes and Volume crashes. 

As a trader, it’s essential to look for stocks with high volume because those are the stocks in play. When you are trading low-volume stocks – think less than 20,000 shares of volume; they might as well have no volume. Not to be negative, but you won’t be able to trade them because they display no discernable patterns or volatility. 

Come to think of it; volume is a good indicator of a trader’s emotions. For proof, look no further than the wild ride we saw with GameStop. Therefore, that’s why we follow the Volume. 

What Is Short Selling?

ew the newbies on the block, short selling might seem intimidating, but it doesn’t have to be. In an attempt to untangle the so-called maze called short selling, let me start at the basics. Fundamentally, shorting is simply selling shares and then repurchasing them at a lower price.

More importantly, you profit when the stock goes down, yes, down. Having said that, there’s one vital piece you must grasp to profit in short selling, and that’s understanding stock float as it refers to short interest. So keep that in mind as you look for intraday short selling strategies that work for you.

Stock Float

Stock Float is the number of shares currently available for the general public to both trade and invest in. Some stocks have a low float, while others have a high float. To calculate float, you take the total outstanding shares and subtracting the closely-held and restricted shares. 

There are a few reasons why one would be interested in trading low float stocks. More often than not, low float stocks are more volatile than large float stocks. Given that there are fewer shares available to trade, it makes them harder to buy and sell. What are characteristics of low float stocks?

  • Stocks with a float of 10-20 million shares;
  • Lower relative volume (RVOL);
  • You may not get the price you want because it can take longer to find a buyer or seller.

Is Intraday Short Selling Risky?

Any trading you do is going to be risky. And yes, that includes short selling. However, intraday short selling strategies are designed to give you the best outcome for success. It’s up to you to put in the work to make that happen. If you’re willing to learn, study, and practice, you’ll be a great trader. Dedication is all it takes.

Short Interest

Short interest is simply the percentage of the stocks float that’s currently in a short position. Likewise, a stock with a high short interest ratio has an increased number of shares sold short and/or a low number available to trade.

Depending on how you look at it, a high short interest can either be a warning or an opportunity. 

Remember stocks, just like roller coasters, must come back down. And when you think of it that way, the only short-selling strategy you need to know is how to trade the reversal.

So look for patterns when determining what intraday short selling strategies you want to trade. Candlestick patterns are a great indicator of movement.

Trading the Reversal

So how does one know when the stock price is going to come crashing back down. After all, we know that it makes intuitive sense it will. In the most basic sense, we use a few indicators to help us identify when the ride will reverse. 

There’s no one size fits all approach to picking indicators. But some may scream a reversal is coming louder than others – think 20/9 MA cross, 50 SMA crossover to the downside with waning volume. Now might be the time to short!

Pay Attention to the Morning Breakout

Let me start with a classic momentum trading strategy we commonly see at market open. For reasons I’m not going to discuss here, most of the breakouts happen at the market open. Naturally, after a certain amount of time, the stock becomes overextended.

Remember our roller coaster above; well, the car can’t keep going up forever. Eventually, there’s a pullback when traders who bought in low will want to sell to take profit.

But, lurking in the background are the short-sellers who sell at the high because they anticipate the reversal. 

This is the point where the reversal trading strategy comes into play. It’s the trading that’s done after a huge surge or breakout, allowing you to short the stock as it reverses its trend to pullback.

A Word of Warning Using Intraday Short Selling Strategies

When you “go long” or buy a stock, you hope the price will go up. The most you can lose is the upfront cost to enter the trade. But, your profits are unlimited if the price keeps going up and up and up. In other words, there’s no ceiling you can hit.

On the contrary, when you short sell a stock, you hope it falls to zero and hits the floor. But what if the tides turn and the prices rise? Without a ceiling, there’s no limit to the amount you can lose. Luckily though, this can be avoided with tight stop-losses and proper risk management. We show you how here in our risk management video.

Final Thoughts

There is no shortage of trading strategies out there. Whatever strategy you choose, you need to find the one that works for you and stick with it. Short selling is a great way to make significant profits, but it’s not for the inexperienced or faint of heart. That’s because there’s a whole lot that can go wrong when it comes to a short sale and learn your favorite intraday short selling strategies.

The most important thing that you can do is make sure that you’ve done your homework. This type of trading is a very complicated game, and you don’t want to find yourself on the wrong side of a trade. Let us help you in your trading journey. We have thousands of dollars of free courses and videos to get you started. Be prepared for every trading day in the market by joining our team!

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