OTC SHORT SETUPS

(Very Detailed Notes from Chapter 7 of Trading Tickers by Tim Grittani)

 

If going long OTC's is not your thing, it is hard to argue against them going back down after any kind of a run up.

 

---MAIN FACTOR--- The main thing to look for when judging an otc short is overextension on the daily chart. The chart setups have to be there. We do not just look to short because we think it is a crappy company or a straight up scam.

THEY HAVE TO HAVE THAT DAILY OVEREXTENSION.

-Judge OVEREXTENSION from the breakout point

-Look for multiple green days

-Large % run relative to prior action

Once the breakout really gets running, they really extend up, and that is when you flip your view from wanting to be long to wanting to be short. One way to consider overextension is if it has had multiple green days. Truly after only 2 or 3 days, you can begin to consider a stock overextended. Once you have determined overextension from multiple green days, you can begin saying: Hey, when this thing goes red, when this thing snaps and momentum shifts, There is a good chance of this having a hard pullback and for it to be coming back to that breakout area! 

 

Basically you are looking for the stock to have sped up and to be good and extended past that breakout point. You want it to have plenty of room to come down. The determination of overextension needs to be relative to the price action before the run.

THE HIGHER THE BETTER.

-Each passing day, more likely to short into strength

-MAIN play I like is momentum shift and breakdown

-Often green/red triggers this

With every passing day and the higher and higher it gets, I anticipate the intraday pullback to become more and more severe, so I am more likely to begin shorting into strength or shorting into parabolics rather than waiting for the stock to snap and go green / red. 

But that green red move, that momentum shift, that first time the stock actually goes red in multiple days, the first time it is red after a huge extension up --- THAT IS THE MAIN PLAY Tim likes when shorting OTC's. That is what opens the door to some of the biggest crashes. Because when you get sellers coming in, that is when you get panics, and because of the nature of otc executions the panics tend to be very very severe. People cannot get out, so they have to chase, and market makers take advantage of this and really let the stock come down.

 

I look for as much extension as possible on these otc momentum runners, and then I strike either into a nice spike looking to take advantage of a pullback, or I wait for the momentum to snap and I get in as the stock is readying to have a big crash.

 

IF I MISS THE MORNING SPIKE OR G/R BREAKDOWN

-I look to short bounces using prior resistance as risk

Some otc's can collapse very fast and once momentum turns the selling can be relentless, I do like to take advantage of bounces, because shorting into strength gives me a good chance for the stock to at least fade back and retest the prior support. Sometimes that support can even snap and you get another leg down.

 

-You can look at bottom wicks on daily candles to see if the stock ever went red during it's run up and overextension. If it did not ever go red at all, then there will be even greater pressure on that first time that it does go red.

-I want to CAUTION against the line of thinking that the First Red Day means that the run is over and the stock is dead. That is not always the case. You can set yourself up with the potential of getting squeezed massively sometimes if you fall into that frame of thinking.

-As these things get going, I get more and more likely to short into strength. I get more likely to short into strength instead of waiting for the First Red Day, and the the first time the stock has a trend break.

-Keep in mind that even though Green/Red is the chief trend break that you may play off of that does not mean that it works 100% of the time. There are times when it will go red, save itself and grind back up closing green on the day. In these cases something to look for is when it goes green / red and sets that morning low, does that low hold for the rest of the day. If the low is finally taken out, that could trigger the snap.

-If the first time this catches and rebounds, it puts in a lower high, then I will definitely attack. (regarding shorting into strength on $GTATQ)

-On the first bounce after the crack, if it were to put in a higher low, then I would think about covering some of my shares.

CHAPTER 7 TAKEAWAYS

-Daily chart overextension gets my interest

-Shorts into strength, g/r breakdowns, bounces my favorite intraday shorts

-Opportunities lucrative, but becoming less and less common