Every so often a stock goes vertical: up 20%, then 30%, then 40% in a day, faster and faster, until the move runs out of buyers. The parabolic short is a bet on that exhaustion. It is one of Kristjan Kullamägi’s three setups, and the riskiest of them, because a vertical move can always go further than seems reasonable.
The setup is not "short anything that went up a lot." It waits for the first clear sign the buying is over, keeps the stop above the high, and stays small, because a squeeze can move against you very quickly.
What makes a move parabolic
The scan looks for three things together:
- A huge gain in a short time: 50% or more over ten sessions, often far more in small caps.
- A streak of up days: several consecutive up closes, with the daily gains often accelerating.
- Extreme extension: price 30% or more above its 20-day average.
Large caps can go parabolic too, on a smaller scale: a 30–50% run in a mega-cap can be just as stretched as a 300% run in a micro-cap.
Why parabolic moves end
Late in the run, buyers are mostly chasing price rather than value. Early holders start taking profits, short sellers who were wrong have mostly been squeezed out, and once the stock stops making new highs, there is no one left to buy the dip. The reversal is often as fast as the rise.
Entry triggers
Traders wait for evidence the move has turned rather than guessing the top:
- The first red day: the first session that closes down after the streak.
- A break of the prior day’s low: a clear, mechanical trigger.
- A failed opening-range high: the stock gaps or pushes up at the open, then falls back below its opening range.
- A reversal candle on heavy volume: a long upper wick or a close near the low after a new high.
Stops and targets
- Stop: above the high of the move, or above the high of the trigger day for a tighter stop.
- Targets: the 10-day and 20-day moving averages, where parabolic moves often find their first support.
- Size: small. Calculate it from the stop with the position size calculator, and assume the stop can be gapped through.
The risks are different from a long
- Squeezes: a heavily shorted parabolic can spike violently on any good news.
- Borrow: hard-to-borrow stocks can be expensive or impossible to short.
- Halts: volatile small caps are often halted, and can reopen far above your stop.
- Unlimited upside: a long can only fall to zero; a short has no ceiling on the loss.
The mirror image: parabolic long
The same logic works in reverse after a crash: a stock down 50% or more in ten sessions, stretched far below its averages, that prints its first up day. The Parabolic Long scan finds that capitulation bounce.
Common mistakes
- Shorting strength. Shorting while the stock is still making new highs is fighting the trend at its strongest.
- No stop. Hoping a parabolic will "have to come down" is how short sellers get squeezed out.
- Too big. A size that is normal for a long can be ruinous on a squeeze.
Find the stretched names
The Parabolic Short scan lists every stock showing the exhaustion profile, scored and charted.
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