Remember the epic short squeeze, BPTH? So many traders lost everything and blew up their accounts shorting it. Even experienced traders were exposed to the risk. The stock went from the $8s to the low $70s in two days.

I say it all the time: Shorting is dangerous… especially in this market. And newbies tend to judge their trading by how much money they make. If they make money, they think it’s a good trade. But they don’t consider what can go wrong.

That’s where I come in and try to educate them on all the possibilities. I use my experience to try to help them. I want my students to trade safe. But some people don’t want to hear it. They think as long as they’re making money they don’t need to learn anything else.

Learn From Former Epic Short Squeezes

The past doesn’t always repeat itself, but it often rhymes. This is why you study the past. And there have been some HUGE short squeezes in the past. These are good examples of the kinds of losses I want you to avoid.

AQXP is another example. It’s since gone private or changed its ticker. The stock traded between $5–$10. Then it struggled in the $10 range — shorts were likely loading up. The next day, it opened at $18 and rocketed to the $50s.

Then there’s KBIO. My student Michael Goode and I were both on the wrong side of KBIO the night it started spiking after hours. But we cut losses quickly when it went against us. It went from $1 to $10 that night … And the next day it was up to $20.

The most epic short squeeze of all has to be DRYS. In 2016, the stock went from the $5s to the $120s in just five days. That’s an increase of 1,800%. The SEC eventually halted it in the $120s. Otherwise, it probably would’ve gone higher.

These are just a few of the biggest short squeeze examples. There are so many more. Can your account withstand that kind of loss?

The problem with a lot of short-sellers is that they just keep adding to their positions. The stock goes higher, and they just keep adding. They think that when the stock finally declines they’ll make bank…

But what if you’re down too much and your broker buys you in? You have no choice. You’re out of your position and you’re stuck with the loss — no matter how big.

Shorting is the only strategy where you can lose 10–30 times your money — or more — in minutes or days. And it’s not just new traders, experienced traders lose big on these too.

Prioritize Safety

As a trader, your goal should be to protect your account at all costs. When a trade goes against you, cut losses quickly. I try to drill this into all my students.

But sometimes I come down too hard. And for that, I apologize. I know I can be a jerk sometimes. But I’d rather have people be mad at me than watch them lose money.

If I was nicer, people wouldn’t listen to me. I’d probably see a lot more blow-ups. I don’t want that on my conscience. And a lot of students actually like my drill sergeant attitude. If I wasn’t passionate about my teaching, a lot of people wouldn’t listen to me.

Thing is, I REALLY prioritize safety. You can call me a lot of things, but you can’t call me an unsafe trader. I just want my students to trade safely.

Short sellers might have the same winning percentage as me, but I’m playing safe. I’m going long. I’m dip-buying multi-day runners. And buying multi-day breakouts.

The best plays don’t come around every day, so trade like a sniper. And it’s OK to miss a trade. There will be more opportunities. But you gotta be smart about how you trade.

Follow the Rules

Too many newbies have the wrong mindset. They wanna be told what to buy, when to buy it, and when to sell. I have to deprogram a lot of my students and teach them how to think for themselves.

That’s why I promote studying so much. I want you to be self-sufficient and know the risks.

You have to look at why a stock is doing something. Don’t just dip buy any stock. You need to have a reason. Why is the stock dipping? You have to understand why a stock is moving.

Don’t trade just for the sake of trading. A stock might fail on a Friday morning, but that doesn’t mean it’s an opportunity to short. So many traders are just looking for quick cash. But when you do that, you risk too much.

This isn’t rocket science. But you need to think about multiple indicators and the potential risks. It’s not easy. It takes practice. But it gets easier with experience and if you stick to the rules. If I don’t see truly great plays, I don’t trade.

The Bottom Line

Let’s review the basic rules you can use to protect your account and trade safely.

I teach students to look for big percent gainers with a catalyst. Use a stock screener that will for biggest percent gainers, news, social media, etc.

Focus on only the best plays. Watch the overall market. Remember, three out of four stocks follow the market. If the markets are down and you’re looking to buy, you may not find your A+ setup. That’s ok! Don’t force a trade that isn’t there. Wait for your setup, then when the setup is right jump on it!