Ep 115: Six Rules to Short a First Green Day Stock
There’s a lot to love about this week’s SteadyTrade episode. Host Stephen Johnson just returned from a jaunt to Thailand, and he’s planned an extra-special show to share his top six rules for shorting a stock on its first green day.
These rules are three years in the making … It took him a year and a half to develop them, then another year and a half (and some hefty losses) to actually follow them.
As for host Tim Bohen? He’s just along for the ride. Will he agree with Stephen’s rules? Listen in to find out!
Don’t miss this episode on YouTube. Not only will you see the official rules listed in Stephen’s presentation, but he also has some sexy chart evidence to back them up. Here are some of the episode’s highlights.
(Quick note: Need more detail on a specific section? Check out the timestamps below to help you navigate the episode.)
Previous runner? Watch out.
“If it has run before, it must be forecast to run less volume on the day in question.” (9:30) In the episode, Stephen explains why volume matters with stocks on their first green day. Is it possible for a stock to run again with the same oomph? If you’re going to short on a green day, you’ll have to look for less volume than the first day.
Don’t go all in.
“If it ran before, you should never be in more than a quarter or third of the size.” (12:55) Stephen and Tim discuss how shorting green stocks can be dangerous.
There’s always the possibility that news will come out right after the market open that could change the entire playing field. For this reason (and many more), it’s not advised to go all in with this type of trade.
Look for double tops.
“Look for the double tops and risk off the initial high of the day.” (16:04) Stephen and Tim explain what makes it most likely that a stock will run and discuss different setups to look for.
Tim offers related insight on the “Rip and Dip” setup and discusses how one of his favorite setups involves a spike, a dip, and a stock breaking the high.
Be wary of trends.
“Avoid the hot sector.” (21:04) Is crypto going nuts, or are buyers clamoring for stocks in the cloud computing sector? A lot of them spike and fail, so you should approach trending sectors with caution.
Patterns can be seriously thrown off in the face of hot sector volatility, especially in the case of biotechs.
Judge the float against the volume.
“See who’s underwater and why.” (22:52) Stephen explains why you need to look at a variety of factors that could be playing into a stock price.
For instance, instead of just looking at the float, consider volume, too. This can help you make a much more educated guess about how the stock might perform in the future.
Volume is everything!
Stephen thinks that volume is super important when shorting a first green day stock –– and Tim agrees. (23:50) If there aren’t enough buyers, a spike isn’t likely.
If it ran before, it will require an even bigger move for the price to go higher. Listen in to learn why even without reading SEC filings (but of course that’s always suggested, too), you can get an idea of what can happen with a stock’s price based on its volume.
Small wins add up over time. “Don’t underestimate how quickly small gains add up.” (28:26) If you’re always focused on a home run, you can miss many great plays. And those can add up to a growing account over time. Stephen and Tim discuss some key trading psychology tips.
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