The Short Squeeze

28 Jan

Short squeezes are something that happen A LOT and they define the professional trader from the inexperienced trader. Once a stock starts to break out or make a move the retail traders begin to chasing the move (because they feel they “missed out”), but the professionals are already in the move.

At the point that the professionals are selling, the stock is just making news in the media and CNBC is talking about how this stock is a “great time to buy.” The professionals begin dumping their position and all the chasers start getting their stops hit which sends a massive sell off, or in the case of a short squeeze all the shorts are forced to cover and a rally occurs. The professionals in the meantime have already taken profits and are more than likely trading in the direction of the squeeze.

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