Profit with short selling

Welcome to this new video on short selling. As you probably know, the US market is doing quite bad recently. So as a short term trader we should now look for short selling opportunities. Today I want to show you how you can look for those stocks that are potential opportunities for short selling in the US market. And to do that we are going to use FinViz, that is a free website. I published a video in the past about that and today I want to show you how you can screen for those stocks using finviz. So what is the idea when we short sell? Ideally we would like to short sell stocks of companies that are weak. So let's look at the screener here. The first thing we can use is this earning per share. So when a company is not doing well, this value is going down. So here we can write earning per share this year negative and you can see already that we are reducing the number of entries. Same thing for earning per share next year and again we reduce the number past five years. Next five years I would say is not so important because usually for short selling we want to keep a position open for a short time because we will see later the risk. Actually when you short sell is unlimited and also you have to pay interest. So it's not a good idea to have a short position for long time. Let's see what we can also do. Well, a very important thing is we want to avoid to short sell stocks that are penny stocks. So we can take something where the price is at least $10. Why? Because Penny stock can be easily manipulated and we don't want situation where the price is moving against us too much. And we can also check the volume because we want to short sell liquid stocks. So we can have let's say at least 200,000 average volume. And well, if you want to be more strict, you can also require the current volume to be at least 200,000. What else? Well, we will speak later about the float short, that is quite important. But the other thing is we want to find stocks that are in a downtrend. If you remember from previous video, we defined a downtrend as 50 moving average below the 150 both flat or sloping down or price below the 200 moving average sloping down. With findis we cannot really define such complex rules. The only thing we can do is the price below the 200 moving average. So this is an alternative. We can define it here or we can skip the technicals and just use finviz to screen for the fundamentals and use some other software, for example Tinko swim if you have it, to do the rest with the technicals. But let's say we want to impose this condition. Now what can we do? Well, already we have 78 entries. That is a reasonable number. Now a few things to notice. Number one, we don't want to consider biotech company. Why? Because usually these companies are really volatile when some news related to, for example approval for a drug or things like that is released and we may have huge gaps. And the problem is we want to avoid situations where we may lose much more than what we have expected. If you remember in another video I mentioned that yes, we can protect ourselves with stop loss, but if there is a gap, the filling price may be quite far from the stop loss. And especially with short selling, the risk is unlimited because the worst thing that can happen when you are long is that the price goes to zero. But in theory, for a short selling position, the price can go to infinity, it can go as high as possible. So your loss is technically unlimited. And there was this story a few months ago, this guy who was short selling something tracking the vix, the volatility index. And then there was a huge gap. So basically he woke up the next day with a loss of, I don't know, $1, $2 million, much more than the money got in the account. So we need to be very, very careful with short selling. That's why we are so conservative. So we don't consider biotech. And what about the short flood short? Okay, flood short is like the. Is also called the short interest is basically the amount of share that are short over the total number of shares. But actually we are more interested in another thing that is called short ratio. You cannot screen for the short ratio here, but when you click on a company you can see that number. See here short ratio. So what is the meaning of the short ratio? Basically the short ratio is the ratio between the number of shares that are shorted over the average volume. And sometimes this value is called days to cover. Meaning how many days, how many trading days you need to cover all the short positions. Why is that important? Because if this number is too high, say above eight, just to give you an indication it may not be safe to short because it may be very hard to close your position. So we also want to check that the stock we want to short sell is, has got the short ratio below eight. So in this case, yes, it's below eight is fine. Okay, so remember, these are some screening criteria. Basically what is the main idea we want to short sell when the market now is doing bad. The S and P is doing bad. We want to short sell companies that are also doing bad. With enough liquidity, enough volume, no penny stock short ratio below 8. And also we want to avoid pharma company. So to look for those opportunities, Finviz is a good instrument. Now in the next video I I will show you how you can combine finviz again with Tinko Swing, for example. Because as I said, in terms of technical screening, finviz is not really strong. We only have very few conditions. And yeah, before forgetting, another thing we should look for and this can be implemented in finviz is we don't want to short sell companies that are near earnings. Again, the reason is the same. We want to avoid situation where we have gap. Okay? And finally, last thing is, remember that when you short a company and the company is paying dividends, you have to pay the dividends, okay? So when you are long and you get the dividends, it's good. But when you are shorting, remember that you have to pay the dividends to the guy basically who lend the shares for shorting. So that was the video you have seen. Now how to create this screener, you can save it. If you have an account with finviz, you can save the screener and that's all. So I hope you enjoyed the video and see you next time.