In bygone years it was common knowledge that the statistical edge trading micro-cap stocks was predominantly short. This edge is definitely not as strong as it once was.

Corona Virus generated a work from home culture, feeding people with stimulus checks and a lot of free time. With no sports to watch or bet on, naturally people found the stock market. The boom of zero commission trading, definitely supported this transition, too.

Below is a source from Bloomberg intelligence that illustrates how the recent boom in retail trading now accounts for almost as much volume as mutual and hedge funds combined.

Naturally new traders want to go long, shorting has always been a less well known or understood strategy, which is why it had such a big edge in my opinion. Because if 95% of traders lose you should trade the opposite way.

But the record influx of new traders has led to a market shift where longing is definitely working a lot more than it once did, as noobs pile into anything up on the day with a low float.

Here’s how I see it:

The majority of top traders I know usually play both ways, whereas at one time, top traders were mostly exclusively short.

Ultimately, trading is extremely tough and the market often flips biases, so you don’t want to limit yourself to one side of the trade.

In a perfect world, you should long and short, with the capacity to flip sides on the same trade based on price action, but this is something I can’t say I’ve mastered.
The bottom line is that it’s better to swing both ways and it always has been.

One pattern I’ll likely avoid in the future.

This pattern is the gap and crap: shorting stocks up 25% or more pre market when the expectation that they will close lower than they opened.

It’s sadly being temporarily shelved. I say sadly because last year it generated the vast majority of my profits.

But, the reality is it just isn’t as effective right now, so repeating a losing strategy expecting different results would be the definition of insanity.

My theory around why it isn’t working right now is due to the big influx of noob traders. They haven’t yet had the education to learn how patterns form over weeks and months. Instead, they look at what low float is hot on the daily scanner then shoot for the stars.

Below is a good examples of shorts to avoid

On September 17, $CRVS held the 4s after positive phase 2 trial results before rocketing to 9 plus days later. It wasn’t a particularly low float, it loses money like most bio-techs and its previous runs never lasted more than a day.

(See a CRVS daily chart below)

Another stock that probably run…

If you check $MRINS chart history it also held its gap up before running back in June. As of today, Sept 22, it’s gapping again: I’ve decided to start in this position long with very small size. See the green arrow below for my first entry on Zero Pro, probably one of a few.

(See MRIN Intra-day)

It’s one of the best former runners that I’ve seen in recent years and it has popped on news which mentions Google. It’s found a base intra-day so if this goes today, or in a few days, I wouldn’t be surprised.

If I take a small loss I don’t care, it’s manageable and I think the strategy works long term. Disclaimer: I’m still learning the long-side.

If you have comments or feedback hit me on Twitter via @Jonk87. I’ll be writing from Mexico next week so stay patient with me.
Otherwise, If you’re looking for a broker that specialises in short selling you can use my affiliate link to receive discounted fees whilst gaining access on the hottest hard to borrow stocks.

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