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Why You Should Flip the Chart Over Before You Short

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When playing the markets, we have to know when to bet against a stock just as well as when to bet on one

The practice of betting against a stock is known as “shorting” a stock. 

When you short a stock, you are betting against the company’s success.

And doing so can be extremely rewarding for investors who know how to play the system.

Surprisingly enough, though, a lot of people seem to be scared to short stocks.

They shouldn’t be!

After all, it is no riskier than buying stocks.

In fact, I could make a case for it being far less risky.

Stocks tend to take the stairs up and the elevator down. In other words, they fall much faster than they rise.

If you can get your timing down, you could see quick profits from shorting a stock vs. betting on their potential success.

Shorting a Stock

So how does one “short” a stock?

Really, it’s all pretty simple… 

In order to short a stock, you just look for the opposite of what you want to see in a breakout.

Clearly defined support… shallower moves up… and decreasing volume.

Then, you look for a spike in volume when the support area is breached. 

That’s a clear sign that stops are being hit and short sellers are piling on.

A Meme Stock Example

When looking for real life examples of this type of setup, one stock recently jumped out at me that I want to tell you about today.

Let’s take a look at GameStop (GME)…

 Daily Chart of GameStop Corp. (GME) — Source: TC2000

If you flipped the Gamestop chart above upside down, you would see a textbook breakout setup.

These are the types of things we need to be looking for when shorting a stock and, today, that’s exactly what we are after.

Clearly defined support… shallower moves up… and decreasing volume.

Take a look at the chart above and you’ll see that surges decreased from 157% down to 22%.

Note that 22% is still volatile. But this is a meme stock. 

GME hasn’t seen a 5% trading range in a few years. But you can find similar entries with much tighter pivots that require less risk.

Currently, the stock has support near $130 that it is trying to breach, as indicated by the horizontal red line on the chart. 

If it does so (and preferably on high volume) we could easily see GME stock get cut in half.

Proof in the Pudding

Let’s look at another very similar example of a short setup on Natera Inc. (NTRA) that triggered on Friday:

Daily Chart of Natera Inc. (NTRA) — Source: TC2000

Folks, as you can see above, investors who shorted the above stock saw a 15% profit in just two days and likely just the beginning…

Remember, surges don’t just happen on the upside. 

Stocks surge down as well! So there are definitely ways to make money in any economic environment.

Learn to spot multidirectional surges, and you too could start making money in up and down markets.

Embrace the surge,

Ross Givens

Editor, Stock Surge Daily

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