Use short sellers to cash in

adam_woodsLast week, I wrote a piece that discussed the concept of short covering.

This week, I want to show you how to use the information we can obtain about short covering to take advantage of certain stocks. Here is the essence of my strategy for making profits off of short sellers:

As a quick review, short sellers are people who profit when stocks fall, and short covering occurs when the short sellers exit their positions. In order to exit their short positions, they must buy back the stock, and that brings in new buyers to the market.

Last week’s article was very well received and many of you asked how you could directly benefit from this concept. One way is be long stocks (own stocks) as long as this very powerful bull market continues. Another way is to look to buy stocks that have very high short interest.

Nasdaq.com Defines Short Interest As:

“The selling of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short selling is a legitimate trading strategy. Typically, a short sale involves the sale of a security at the current price which is settled with shares lent to the short seller by a third party. The seller makes the short sale on the assumption that the price of the security will go down. If this occurs, the short seller will purchase shares to lock in a profit, extinguish the short position and replace the shares previously borrowed. Of course, if the stock rises in price, the short seller may elect to close out the position through a purchase, and absorb the resulting loss. Firms are required to report their short positions as of settlement on the 15th of each month. A compilation is published eight business days after.”

Bullish Fuel:

Many times, when a stock refuses to fall, it shoots higher because short sellers have to cover their positions and are forced to buy the stock to exit their short position. A good way to look for nice unexpected gains in the market is to buy stocks that are going up and have a high short interest.

You can learn how to identify these stocks by reading out Stock Code Breaker course, or you can let me do it for you by subscribing to the Midas Wave.

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