Steemit Crypto Academy Contest / S13W4 : Short Squeeze

A short squeeze is like a stock market rollercoaster where investors betting against a certain stock (short sellers) suddenly find themselves in a tight spot. Consider the scenario where you borrow your friend's bike with the expectation that its worth will decrease and you may return it for less money. However, you're in trouble if the bike's price suddenly soars. In a short squeeze, the stock price rises and short sellers rush to buy shares in order to limit their losses, pushing the price even higher.

_source
To put it simply, it's a game of financial dominoes. A squeeze occurs when several short sellers rush to purchase shares at once. Things grow frantic and costs might soar when everyone tries to leave at once through a small door.

For people who find themselves in a tight spot, it can feel similar to attempting to catch a falling knife. They run the risk of suffering significant losses, and the craze may have a domino effect on the market as a whole. Thus, it's an exciting trip where foretelling the result is just as difficult as speculating on the weather.

As in the discussion i mention a scenario of borrowing bike , as for example you borrow your friend's awesome bike, expecting it to lose part of its worth, but then... The bike doesn't break; instead, it becomes the talk of the town and becomes in high demand. It bears similarities to the fate of Dogecoin. Dogecoin's price increased from 0.060 to an astounding 0.065+ in 2018. "Nice, it'll go back to 0.060," others said, but oops, it shot up to 0.074.

_{Coinmarketcap SS}

It's like waiting for a deal on your favorite sneakers only to discover that they've become quite fashionable and that their price has skyrocketed. Squeezing into a tight spot was a precarious situation for Dogecoin investors who were hoping for a decline. As with forecasting the weather, making these market projections can be extremely difficult.

A financial phenomena known as "short squeeze" happens when investors, also called "short sellers," borrow assets in the hope that their value would decline. The plot twist occurs when the asset's price increases and the contrary occurs. These short sellers are put in a difficult situation during a short squeeze when they scramble to repurchase the assets at higher prices in order to reduce their losses. A cascading effect could result from this increase in purchasing activity, pushing up the asset's price even higher.

Typically, an abrupt change in market sentiment or unanticipated good developments pertaining to the asset are what cause a short squeeze to arise. Short sellers are frantically trying to sell their positions, and as a result, they are increasing demand and driving up prices. The interplay between supply and demand, along with the pressing need for short sellers to cover their positions, results in a distinct and unstable market circumstance called a "short squeeze."

Advantages

• Profit Potential: Making good decisions during a short squeeze might result in significant earnings. An investor can profit from the rising market if they accurately identify an asset with substantial short interest and a price increase.

• Opportunities Amidst Market Volatility: Short squeezes frequently follow periods of heightened market volatility. During these swings, traders that do well in dynamic conditions could find opportunities to profit quickly by entering and exiting positions wisely.

• Market Awareness: Short squeezes may highlight possible flaws or openings in the industry. Investors can make well-informed decisions and modify their strategy by identifying these patterns.

Disadvantages

• Limitless Losses: The potential for loss in short selling is infinite, in contrast to standard investing. Since there is no upper limit to the asset's price, short sellers could suffer large losses if the price rises further.

• Timing Difficulties: Accurate timing is essential for a short squeeze approach to be implemented successfully. It's difficult to predict when a short squeeze will happen, and timing errors can result in losses.

• Market Manipulation Risks: Market manipulation can occasionally be the driving force behind short squeezes, creating a dangerous atmosphere. It could be difficult for traders to discern between market moves that are natural and those that are the result of manipulative tactics.

A few days ago, I saw a short squeeze scenario on the Steem/USDT chart. The price of Steem was ranging from $0.220 to $0.27. When the price of Steem dropped to $0.28, I put some of it in my wallet in case it went up in value. I set up a limit trade at $0.223, anticipating a slight bounce to $0.23 to set up a clever move. But then things took a surprising turn, as Steem shot up to $0.33 and higher instead of simply recovering.

Technically speaking, my original plan was a wager that the price of Steem would drop from its peak. I was caught off surprise by a brief squeeze in which Steem surged rather than fell. This situation highlights the inherent challenge in predicting market movements and the risks involved in short-term trading strategies.