Trading World Champion Explains: The PERFECT Short Trade

The best moment for a short trade. What is the right point you have to use after a pump and dump stock or after a big, big short squeeze in futures, for example? Today I explain you very deep what is my way to go inside on the short side in the market after a very, very huge stop run from short sellers. And this is amazing. It is so important to know where is the best place because this is the only way you can choose a very good risk of reward ratio with a logic behind your stop loss. Who I am? I'm Thomas Forwald. I'm the Champions Maker in trading. I explained a lot of people my way of trading, for example Patrick Nill or Christoph Radeker. All of them become big success in trading, and I think you can use all these insights for yourself.

You will love it. See you soon. Dear friends, today I want to present to you something from my old days which is still perfectly applicable nowadays. Because time and again, there will be opportunities, whenever some hype is being driven through the village, for us to find ways to participate disproportionately in exactly that. But one thing I can tell you, whenever something looks really, really good, that's when it carries the greatest risks. Be it back then with the long trade, whether it was in crude oil, which then went to minus, who knows what exactly happened, or back then with the VW short squeeze, which I'll talk about a bit by analogy today, because that's exactly what we've just experienced with Avis. And I want to demonstrate to you step by step how it is both highly intelligent and financially sensible to take such a short position against an extreme short squeeze. What does that even mean? Short squeeze? A short squeeze means nothing other than that a particular product, in this case a stock from Avis Budget Group, which is traded on the NASDAQ, shoots up extremely. The first thing we always need is, what is the story behind it? And in this case, it was actually quite straightforward that a significant number of different hedge funds owned most of the shares, and there were an exceptionally high volume of short positions. And what does it mean when people have to close their short positions? They have to buy, and if there aren't many shares left on the market from the free float, then things get tight. And this exact story was played out here, but whether it's true, that's exactly what we're about to find out. Yeah, take a look here. This is the stock of Avis Budget Group from the NASDAQ. And what happened here? We had an extremely sharp and sudden move here. So, as I have just finished explaining, this move happened because when short sellers, that is, those individuals who had shorts, who had the line, or even naked short sellers, were ultimately forced to close their long positions. And when we finally crossed over here and this specific message had already come in, the market basically just kept shooting further and further upward in a very strong way. Why? The story is actually quite simple. Panic broke out, then margin calls started happening. That means people had to buy no matter what the price was, and the market shot upward. And now, of course, the question always is, when we say this is an exaggeration, we first have to understand when could it come to an end. And that's what I want to show you, because let's first take a look at what happened afterwards. And this is what's really, really exciting, because when I showed you the picture earlier, we were standing about here. And just to quickly go back to that, we were already at the peak of the market at 8:40, and it really does not make much sense to just short somewhere around here. Instead, it makes much more sense to wait until the market falls back below certain key price levels. For example, we can use the closing price of the previous candle as a benchmark to say, "Yes, the market could potentially turn here." But quite often, by that time, it is already far too late in the move. And now the question is, which of these is really sustainably interesting for us? Perhaps we should build the analysis together with you before we move to the more detailed, smaller timeframe picture. The first thing I'm always interested in is what do the volumes look like. And here I can already see there were larger volumes here and really big volumes here. And if we zoom in here now, we immediately see the following. This here is now a wonderful chart on the 1-hour timeframe. And on the 1-hour chart, we can see the following. And a 1-hour chart is completely sufficient. Let's take the average volumes and just get an idea of them. And then you can already see here that something is developing, namely the total volumes are increasing at a steady rate. And now you might say, yes, you could already enter a short here. Well, I can tell you, you can, that's always possible, but the probability of getting stopped out is then high. And especially when such a story is being played out, it's essential to look at which story is actually being played. And that's what I just explained to you. And now it gets interesting. Take a look here. Here we have a huge volume, and this huge volume occurred exactly here, and that made me want to take a closer look at what's actually going on here. Is there already an opportunity here to enter a short position? And there was such an opportunity, and you always have to be honest with each other and say, all right, There was an opportunity here to enter my first short. We had a wonderful setup here in the time bar. That means nothing other than a market has risen sharply with absolutely exponential volumes, and suddenly there's a period of consolidation within the chart. And now comes the crucial point: if I now enter such a short position, how do I manage my risk? And I can tell you, you have to place your risk above this level. That means, for example, if you entered the market market at 640, you had a stop loss at 730. That's $90. But now comes the next question, and it's much more important: where is my profit target, and what actually makes logical sense? And I can tell you very clearly, the profit target should be where the last largest volumes occurred. Now, why exactly is that? It is because that is where the market had its stable and fair market price valuation before the story began its rapid and explosive move to the upside. And if you compare this with many other trades from the past, including Volkswagen back then, you'll see that these are exactly the precise target areas you can aim for. But let's get back to this trade. As we can see, it unfortunately didn't work out as expected. So what can we do then? What do we need to do when we see something like this? Well, we can enter another trade. For me, the absolutely most crucial thing is This profit stretch, which is predictable, and this profit stretch, if we say from $640 to $250, is simply huge. We're then in the range of $390, and if we look at $390 in terms of the risk-reward ratio, 9, 18, 27, 36, up to greater than 4. That's pretty cool already, but now let's take a look at what you could actually do if you had hit the stop loss here. And this is the most crucial thing you have to do. You can move down to much smaller time frames, and that is exactly the key point to understand. And then you can make wonderful use of such a concept for your own trading strategy. For example, if you build a corresponding balance zone right here in this area where you unfortunately got stopped out. And what I can see right away here is that when the market went above this level again, the trading volumes were already not as extreme anymore. And as far as I am concerned, that's a clear sign that although the market participants completely flushed everything out of the system here one more time, including me, along with the last holdouts who thought maybe you could still buy here, the market gave me yet another very clear signal. And now I want to show you exactly why it absolutely makes sense to enter into this trade again, because this here is a wonderful B profile. Here I can see, aha, and here I can manage my entry. And now I have a unique opportunity that otherwise wouldn't be possible for me if I were just selling the high. Here I have a risk that is suddenly significantly and substantially reduced. I have a very clear and highly logical entry methodology for myself. And once again, and I always have to stick to my price target, my price target of $250. And what happens now? That's exactly what's so fantastic about it. You can potentially take on a significantly larger position size. I am going to explain to you in great detail in the next video exactly how I determine my position size. And this size, of course, is fundamentally based on the specific fact that I always determine my position size in direct accordance with my stop-loss level. And it's actually quite simple. If I have a risk of $40, $35, I can relax. I can take many more shares than in the previous idea with, for example, $90. That also means this stop loss here was triggered with fewer shares. That means it wasn't really painful. If I had taken the same number of shares as here, which is almost 3 times as many, then I would have a problem because I would lose much more capital from my respective assets if I got stopped out. And in addition, and this is also very important, especially when shorting, it's essential to know that your risk to the upside is theoretically unlimited. That's why it's always good to wait. And what happened here unfortunately happens quite often. After an initial maximum squeeze, and also the opposite which happens after the squeeze, namely a trend reversal, there was another gap down on the following day. And if you've understood that for yourself, the idea unfortunately didn't work out. Second idea, that one worked. You have several pieces of information that help you execute such a trade in the best possible way for yourself. You know there was another gap overnight. You know it's now at its absolute peak since the trading volume is no longer as high but still exponentially much greater than in the past. And lastly, you have a real setup, in this case a B structure, that shows you it's really time now. So sometimes patience is called for after all, and sometimes it's better not to short right at the tops even if it looks like you should. But we never know which of these options is actually the right one at the moment. That's why you can try both times, and if you have smart risk management, it works out great as well. Thank you for listening. I hope it helped you. I hope you also saw that the idea came up beforehand, and I clearly explained to you how you could implement something like this. With that in mind, I wish you lots Lots of success this week.