We’ve seen a shift in the stock market trend the past couple of weeks. The market has been on a monster tear since the crash in March. We finally have seen a significant pullback in the markets that have failed to immediately get bought up. These market pullbacks can offer amazing opportunities to both the shortside and longside. Short squeezes are one of the best trading setups to use to bounce a stock after it has pulled back for a few days.
Learn how to use this setup in our latest video lesson, where I recap a recent short squeeze trade I took in $NNOX:
What is a Short Squeeze?
A short squeeze is simply an increase in a stock’s share price because of short covering. When you short-sell a stock, you borrow shares from your broker and then look to buy/cover them at a lower price.
However, if the stock keeps going up, shorts will have to cover their position in order to avoid a big loss. As short-sellers scramble to cover their positions, they have to buy their shares back from their broker, causing the stock price to increase rapidly in value due to the increasing demand.
Short Squeezes = Short Term Trades
Treat a short squeeze trade as a short term trade, such as a day trade or a short swing trade. In order to trade short squeezes successfully, you have to have good timing. These are not trades to marry.
Pay attention to a stock’s short interest, which shows an approximation of the number shares short a stock. Stocks with high short interest are good candidates for this setup, especially when combined with a technical pattern. You can see a stock’s short interest on shortsqueeze.com.
Thoughts on the Overall Market & Stocks to Watch
In the last few days, we have seen signs of the market putting in a temporary base and beginning to rally. This is a great time to pick up some strong stocks that have pulled back with the market in the last couple of weeks.
Here is video lesson from this morning where I run through some of the best stocks to watch this week:
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