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My formula for high short interest

A Tuesday Trade Edition: One of the most important concepts in trading is to review your work, and learn from the good and the bad. It’s critical to identify what’s working — to do more of it. Each week, you’ll get a trade from my trading journal, in which I explain my whole thought process from start to finish. Trading is all about finding something that works, and applying it, over and over again. That’s how you find trading success. So study up on this “Tuesday Trade” and let’s get to work.

The name of the game for me lately has been high short interest…

With the ability to take profits within days, it can definitely be a consistent way to grow your account over time.

So I’ve created a quick formula for how these trades generally work out.

Let’s take a look at Virgin Galactic Holdings (SPCE) to get a better understanding…

I got into this trade for a couple different reasons:

  1. Positive volume on my TurboVZO Indicator
  2. Had a Squeeze
  3. Had High Short Interest
  4. The TrendStrength Turbo Candles showed us there was high momentum and volume and that a breakout was coming

I got into this one right around the spot where we could see some momentum breakout on the TrendStrength Turbo Candles as we could see that the candles were green (plus a volume dot was present on the chart). That told me SPCE was getting ready for a momentum breakout, and you need a momentum breakout for a short squeeze.

The key to a short squeeze is you need to be able to identify when it’s going to breakout… and this is the best way to do that.

How This Trade Played Out

So I picked up several long calls on SPCE within my Mastery Program. Since SPCE is a very volatile stock that’ll move all over the place very quickly, you have to be willing to sit through some volatility. Which is exactly what happened once I got in. I got in, and it went down 10% the very next day, and then the following few days it just blasted up higher up to 13%.

In fact, I actually had two different positions in this ticker. The one in my Mastery was more conservative which I alerted my members about, and then I had one in my personal account. When I’m posting trades I try to be a little more conservative to make sure everyone can take advantage of it and that it’s applicable to more account sizes. So that’s why I generally describe my more conservative trades in broader detail.

For this trade, I got in for $4.10 a pop, and I ended up selling those for $6.00 a pop. So about 50% in a couple of days.

But what I wanted to do was to take these profits as this ticker was breaking out because it’s so volatile. A lot of the time I just like to take my profits off when I get the breakout. So moral of the story?

Identify the high short interest ticker, identify the consolidation, get in before the breakout, and then take money off on the breakout.

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