My Strategy

     It's about time I lay out all of my rules/criteria for choosing the stocks I short. There are always minor variations in the chart patterns (and I'll be the first to admit to bending these from time to time), but I like to stick to these 7 'unbreakables':

1. A stock that's had an incredible run (think 300%+ gains) over a short period of time (not longer than three months, and preferrably within three weeks).

2. I like the $2-$6 range, meaning the stock's around $2 at the beginning of it's run, and $6 near the top (or when I would consider shorting). I've found $1-$4 and $3-$8 can also work, but you get the idea.

3. It has to have had it's first down day. Period. Why short into something that hasn't shown the first sign of weakness?

4. Try to short stocks with a market cap <$500 million. You don't want extremely small market caps, though, or the broker you borrowed the shares from may force you to cover.

5. Large Volume spikes at onset of run have dissappeared (looks like a downhill slope).

6. Commit 100-300 shares initially to a short, and add only once more if it spikes (short squeezes) more than $2.

7. Fight every urge to cover!!!

     I haven't completely mastered the decision-making process when comes the covering for a profit. Currently, I'm using the same stair-stepping strategy used in shorting (Rule #6): Ease in and ease out. With the exception of Rules 6 and 7, this is pretty much the strategy I've learned following Timothy Sykes.

Warning: Do not try this at home!