Short Selling

Lance uses a sentiment scale to stay calibrated during trades. Zero is neutral — flat, dead price action. Positive 10 is steady, sustainable bullish accumulation. Positive 20 is euphoric — so bullish you do not want to be long anymore because the move is exhausting itself. Negative 10 is steady bearish selling. Negative 20 is pure panic capitulation — everyone puking, the exact condition for a mean-reversion long. The scale forces continuous awareness of where the stock sits in the emotional cycle, preventing you from buying euphoria or shorting panic.

Host asks why Gon focuses exclusively on the long side. The answer is structural: shorting small-cap names requires locates from the broker, and by the time he calls, confirms availability, and places the order, the downward move has already started. Additionally, being wrong on a short in a small-float squeeze stock can be catastrophic — the stock can halt up multiple times in a row with no ability to exit. He tried shorting in 2022 but found the mechanical constraints removed whatever edge he might have had. For his setup and style, long-only is the only viable choice.

Schwager names flexibility as the single most underrated habit of elite traders: the willingness to change your mind when evidence shifts, even when you have high conviction. He illustrates this with Druckenmiller’s famous 1987 crash trade. Going into the crash weekend, Druckenmiller held a short position. On the following Monday — the single largest one-day drop in U.S. market history — he recognized the market was massively oversold and reversed his entire position to go long. Schwager uses this to reframe conviction: great traders don’t lack conviction, but they hold views as hypotheses rather than identity. Traders who can’t change their minds when the facts change are unlikely to achieve long-term success regardless of their other skills.

"When the facts change, you need to be able to change quickly."

Pradeep reflects on 26 years of market evolution: moves are far faster, information is exponentially more available, and today's beginner can access real traders on social media in ways impossible in 1999 — the playbooks that took him years to discover are now public. He identifies small-cap shorting as the dominant and well-documented edge in professional day trading, no longer a guarded secret. The structural insight that took him longest to grasp was the role of the Fed as the primary driver of secular bull and bear markets. Shorting into a Fed-accommodative environment is among the most dangerous mistakes a swing trader can make — when the Fed wants the market to go up, nothing stops it.

"Who is your daddy if you are in the stock market? That's the Fed. When the Fed decides that the market needs to go up, nothing is going to stop it."

When evaluating trading advice or strategies, Pradeep focuses on the content rather than the source's reputation, verifying every idea by checking it against historical data before accepting it. He debunks a widely repeated market rule — that stocks holding up best in corrections make the biggest post-correction moves — which he personally tested and found to be false. The same skeptical verification applies to discovering edges: by surveying what 20 or 30 well-known day traders publicly say and do, a motivated beginner can independently reach the conclusion that small-cap shorting is the dominant day trading edge. Ideas can come from anywhere; the filter is evidence, not authority.

"I don't go by what the person is. I look at what is the content. I don't trust any information but I verify by doing deep dive, by looking at — does this make sense?"

Strategy alone is never the differentiator — episodic pivots or small-cap shorting are well-known playbooks. The gap between a trader who makes a million dollars and one who does not is purely execution: minute entry and exit techniques, the small specific tactics that a new trader cannot even imagine. Pradeep illustrates with a personal example: for his first ten years, trades that made 20-30% would reverse to breakeven because he gave them room to run. The simple tactic of selling 80% into strength after a 10-20% gain and keeping only a small remainder — an idea he found from another trader and immediately adopted — would have saved him a decade of frustration. Successful trading is built on these small, specific execution edges accumulated over time, not on a single big idea.

"Execution is the edge. The difference between somebody who makes a million dollars in a trade versus somebody else is their execution — you can take a generic set of ideas and convert them into highly profitable trades by creating execution edges."

The most important first decision for a new trader is choosing a timeframe: day trading, swing trading, and position trading require fundamentally different skills, tools, and temperament. Once that decision is made, copy a proven strategy within that timeframe — for day traders, small-cap shorting and news-based stocks in play are the most documented edges. Pradeep reflects on the extreme difficulty of unlearning bad trading habits once formed: procedural memory makes wrong behavior automatic, just like a bad driving technique that persists despite conscious effort. The traders he has seen genuinely transform were often those who first hit absolute rock bottom — losing borrowed money, a relationship, or everything — before rebuilding with real discipline. The lesson: get the system right early, because a faulty framework that bakes in over years is very hard to rewire.

"It's very difficult once you build bad habits to change them because there's procedural memory — if you learn the wrong way to drive, it's very difficult to change. Same way in trading."

Druckenmiller's biggest regret: predicting inflation correctly in early 2021, writing a Wall Street Journal op-ed, and shorting bonds at 15 basis points — but taking profits at 150bp when they eventually went to 500bp. He held the right thesis but failed to let it play out fully. On AI replacing human investors: pure machines can make money through disciplined process and math, but the best investor in the world will be an intuitive human using AI as a copilot — just as Garry Kasparov pioneered using machines to train and augment his chess.

"I had a mass of short in two-year notes — they were 15 basis points and I was so mesmerized by where they'd been that I took most of them off at 150 basis points. It seemed like a great win, but they went to 500. I regret deeply not holding that position."

Druckenmiller launches into a sharp critique of Fed policy. Jerome Powell won't have the courage to raise rates in 2020, but rates at 1.5% are absurd given full employment and nominal growth — he'd guess the appropriate rate is 3.5%. He's expressing this view by shorting the long end of the Treasury curve. The pattern repeats: Bernanke declared victory with the Great Moderation in 2004, Greenspan was called the Maestro — then the financial crisis happened because of bubbles created by easy money. Negative rates, which Trump has been pushing, are 'the most anti-capitalist idea I could ever dream up.' He grades Powell as a weaker version of Yellen — lacking Bernanke's conviction and ability to control the room. His true hero remains Paul Volcker, who had real courage.

"If I came down from Mars and you showed me the broad landscape and asked what Fed Funds would be, I probably would guess three and a half. I will go to my grave believing that that financial crisis happened because of bubbles created by easy money."

Steven explains the origin of his core strategy, which is built on human nature rather than indicators. The pattern: a stock drops from $10 to $1, sits dead for months, then gaps back up toward $7. The natural human reaction — 'I can finally get out even' — causes trapped holders to sell en masse at the open. Knowing this, Steven positions short into that selling pressure, anticipating a 20%+ drop as the panic cascades. He then refined the setup with statistics: filtering by market cap range ($10M-$100M), float size, volume thresholds ($50M-$200M), and measuring the average percentage decline down to the decimal point. The strategy originates from psychology; the statistics convert the insight into an executable edge.

"Strategy comes from human nature. Originally the strategy comes from human nature. So let me give you example. Let's say you bought a stock at $10. Stock drops to $1. After six months stock gapped up to $7. Your instant reaction is to sell at open. 99% of the time, people want to cut their losses even. So I'm in there knowing you going to sell, I will place myself in a short positions."

Steven explains that he is 98-99% short because the statistics don't lie: his short setups have a 90-95% win rate, while his long setups max out at 60-70%. Shorting also delivers higher rewards on a single-day basis — sometimes up to 70% in one day. He also maintains a permanent blacklist of biotech stocks. After 10 years of trading biotech purely on technical patterns, his net result was roughly +1% — losing $800K and making $850K. The irrational price action, multi-day runners without pullbacks, and the tendency of traders to irrationally hold biotech through collapses made the entire sector a negative-expected-value effort. Even when he won on biotech, he'd lose it back later. He finally learned to cut the sector entirely rather than keep fighting a losing statistical battle.

"I'm 98-99% short. Shorting has higher winning percentage especially in the small caps. Going long — the winning percentage is only about 60%. If you do really well, maybe 70. But there's no way you can hit 90-95%."

Asked about requiring hedge funds to disclose short positions, Icahn believes in disclosure in principle but has not thought deeply about the mechanics. The more substantive exchange comes when asked about Valeant's ethics — specifically buying drugs and raising prices 5,000%. Icahn clarifies: his critique of Valeant was never about ethics; it was about accounting. Many companies are overstating earnings by refusing to amortize intangible assets from acquisitions. The market is pricing in earnings that are not real. His warning from earlier in the conversation is reinforced: the earnings many of them are overstated, and the S&P 500 is really going to 23 times earnings, not 17.

Ariel started swing trading with a basic setup: move up, move sideways, surf the moving averages, breakout. But not every chart is picture-perfect, so as he gained experience he added specific setups to his playbook — undercut and rally from Gil Morales, the VCP from Mark Minervini, the flat base breakout from Pat Walker. Market environment and the stock’s industry group determine which setups work and when. For short selling, his trick is simple: put a minus sign in front of the ticker to flip the chart upside down — if it looks bullish inverted, you short it. The philosophy: "I’m just a trader and that’s just a setup. In real time, I’m just a risk manager." Price is the only thing that pays — not news, not earnings, not CNBC. Master one setup, go to the next, and play both sides of the market.

"I’m just a trader and that’s just a setup. And in real time, I’m just a risk manager. Nothing else matters — not news, not what Trump said, not what CNBC is saying, not what the earnings are saying. None of it matters. Price is the only thing that’s going to pay you."