Short Squeezes

lucacrebbe

Trader
Jun 26, 2017
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Hello can you please explain to me a term and a trading dinamic which I don't fully understand?

I am talking about going long/down (buying/selling) options and futures.

In this market what is supposed to be a ''short squeeze'' ? What is the dinamic behind it?

I have also a pic uploaded. I both case it has happened a ''short squeeze'', but what is it basically? what's the dinamic behind?
 

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Enivid

Administrator
Staff member
Nov 30, 2008
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Odessa
www.earnforex.com
I am not an expert, but I am quite certain that there is no surefire method to tell that this or that pattern on the chart depicts a 'short squeeze' event.

Short squeeze happens when there is not enough supply of the stock/futures and short-sellers have to cover their positions and cannot find enough shares to buy back. This pushes the price up, which prompts even more stop-losses to trigger, which are also unable to cover that the current price, sending it even higher. It becomes something like vicious circle.

Long squeezes are much less rarer because in stocks, long-term investors buy shares without margin and rarely use hard stop-losses.
 

J_C_Anderson

Trader
Aug 15, 2018
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Short Squeezes often take place on the stock market in the stocks with low float (number of shares in circulation). In such case, the speed of price movement makes short traders to cover their positions. Such process could cause extremely large price movement (from $2 to $10 in a day, for example).