The number of shares short can be measured directly, but it’s also helpful to think of it as a fraction of the average daily volume of shares being traded. It starts with finding stocks that have a lot of shares being shorted. So, how do you identify potential short squeeze setups? To get the timing right, you need to know that a short squeeze might be coming. When trading a short squeeze, the goal is to get at the start of the bullish activity, before the majority of short sellers have been able to cover their positions and demand for the stock fades. A short squeeze can turn what might have started as a gain of several percent into a gain of 10% or more in a single day. This creates something of a snowball effect – short sellers buy up the stock and drive up its price, thus forcing other short sellers to do the same thing to limit their own losses. That drives up demand, which in turn creates a lot of buying pressure and a sudden jump in the price of a stock. In a short, that means buying back the stock to cover the shares they borrowed and sold.īut, sometimes there simply aren’t enough shares to go around for all the short sellers who want to buy back the stock. The easiest way for short sellers to cut their losses and answer their margin call is to simply close their trade. Not only that, but short sellers will also start getting margin calls from their brokers as their short goes bad. Short sellers face unlimited risk if they turn out to be wrong and a stock’s price rises. What is a Short Squeeze?Ī short squeeze occurs because short sellers get skittish when it looks like their short bets may prove wrong. Let’s take a closer look at short squeezes and how you can scan for potential setups using Scanz. You need to be ready to take advantage of the situation as soon as a bullish catalyst sets off the squeeze. But, the key to getting in on the ground floor of a short squeeze is to spot it before it happens. A short squeeze is a very profitable setup if your entry and exits are timed correctly.
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