Cost to Borrow Signal

Entry Logic

• Exact Entry Trigger: The cost to borrow a stock for shorting spikes to an annualized rate of over 100%.
• Confirmation: The high borrow cost is sustained for several days, and the stock price refuses to break down.
• Timeframe: Daily chart.
• Location Context: The stock is often in a consolidation pattern after a recent run-up.
• Market Condition: Any, as this is a stock-specific supply/demand imbalance.

Exit Logic

• Profit Target(s): A 30% move, as the high borrow cost can force a rapid unwind of short positions.
• Scaling Out: Sell half at a 20% gain, trail the rest.
• Trailing Stop: A 10-day EMA.
• Signal Failure: The borrow cost normalizes (<20%) without a significant price move up.
• Opposite Signal: The stock breaks below its consolidation support.
• Time Expiration: 1 month.
• Momentum Loss: The stock stops making higher highs.

Stop Loss Structure

• Hard Stop: 15% below entry.
• Soft Stop: A close below the low of the consolidation range.
• Maximum Dollar Loss: $1500 per trade.
• Maximum Percent Loss: 15% of the trade value.
• Structural Stop: Below the consolidation pattern.

Risk Management Framework

• Risk Per Trade: 1% of the account, but with a smaller position size.
• Maximum Daily Loss: Not applicable.
• Maximum Weekly Loss: Not applicable.
• Maximum Drawdown: 20% of the account.
• R:R Requirement: Minimum 2:1.

Position Sizing Model

• Sizing Approach: Use 1/4 to 1/2 of a normal position size.
• Volatility Adjustment: These stocks are extremely volatile; risk is managed via position size.
• Conviction Sizing: Not applicable; all are high-risk.
• Scaling In: Not recommended.
• Scaling Out: As per exit logic.

Trade Filtering

• Market Conditions to Avoid: None, but be cautious in bear markets.
• Specific Setups: Focus on stocks where the high borrow cost is a new phenomenon.
• Instrument Requirements: Typically low-float, hard-to-borrow stocks.
• Time Restrictions: None.
• Chop/News Avoidance: The high borrow cost is the primary signal.

Context Framework

• Trend Direction: Often in a recent uptrend, attracting shorts, which leads to the high borrow cost.
• VWAP Relationship: Above the quarterly VWAP.
• MA Relationship: Above the 20 and 50-day EMAs.
• Range Location: Consolidating near the highs.
• Higher TF Alignment: Weekly chart should be bullish.

Trade Management Rules

• Breakeven: Move stop to entry after a 20% gain.
• Scale Out: Take profits into strength.
• Add Size: Not recommended.
• Fast vs Slow Moves: Expect extreme volatility.

Time Rules

• Optimal Window: As soon as the high borrow rate is identified and sustained.
• Times to Avoid: After the stock has already squeezed.
• Session Notes: Volatility can spike at any time.

Setup Classification

• A+ Criteria: Borrow rate > 200%, low float, and a recent catalyst.
• A Criteria: Borrow rate > 100% and a constructive chart pattern.
• B Criteria: Borrow rate is high but fluctuating wildly.
• C Criteria: Avoid.

Market Selection Criteria

• Instruments: Low-float common stocks.
• Volume/Liquidity: Can be thin, which is part of the reason for the high borrow cost.
• Volatility: Extreme.

Statistical Edge Metrics

• Expected Win Rate: 25-35%.
• Average Win Size: 50-150%.
• Average Loss Size: 15-20%.
• Profit Factor: 3.0+.
• Expectancy: Extremely high due to the payout structure.

Failure Conditions

• Market Conditions: A market downturn can give shorts the upper hand.
• Specific Scenarios: The reason for the high borrow cost is resolved (e.g., a large shareholder makes their shares available to borrow).

Psychological Rules

• Mental Discipline: Must be able to handle extreme volatility and accept a low win rate.

Advanced Components

• Market Regime Detection: Not critical.
• Filters: Use a broker or service that provides real-time cost to borrow data.
• Correlation: Not a factor.
• MTF Alignment: A bullish weekly chart adds confidence.

Location

• Where Strongest: In low-float, high-momentum stocks that have attracted significant short interest.
• Where Weakest: In large, liquid, easy-to-borrow stocks.