Steemit Crypto Academy Contest / S13W4 - Short Squeeze.

Hello to all fellow Steemians!
It has been a long time I participated in any contest on Steemit. This time as soon as I saw the contest topic about short squeeze, I couldn't stop myself to take part in the contest, as nowadays I indulged in trading. I trade in options and several times I experienced this situation of short squeeze.
It is my personal experience that if you are a new trader, must avoid short selling as it become very difficult to manage short squeeze due to lake of experience and one can lose money beyond their loss limit.

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What are Short Squeeze? From your own opinion.

It is a situation in trading when price of any asset is raised sharply and short seller forced to close their trade to save losses. Due to short covering by short seller, price further triggered to higher side.

With a couple of assets (cryptocurrencies) show an example of a Short Squeeze. Screenshots are required.

Here I will try to explain Short Squeeze as I observed in the following charts.

ETH/USDT chart

In the above chart, we can see an up move in ETH/USDT pair. After this up move, it is consolidated for some time. During that consolidation period short seller saw an opportunity of correction in price and in the anticipation of price fall the made some short selling position. But after some time the buyer dominated, or we can say up move continued further. As the price started to move upside, the portfolio of short seller started to become red and as per their risk appetite they started to square off their short position. Due to that short covering further price surged sharply. Thus, a short squeeze formed.

BTC/USDT chart

Similarly, in the above BTC/USDT chart after some down move BTC is consolidated and gave a sharp up move. It can be considered as an example of Short Squeeze.

How is a Short Squeeze formed?

To take the advantage of downward movement of any asset, short selling feature is introduced. Here a trader borrow some share/crypto and sell them on current price in the anticipation that in coming time price will move down. As price will go down, trader will buy it again and return the asset to lander. It is a leverage position created by any trader.

In case of any positive news or any bullish scenario, buyers become active and started to buy the asset. As price goes up other retail and small investors also start to buy thinking that rally shouldn't be missed out. But this situation is unfavorable to any short seller and their trade started to show losses. At certain point short seller has to square off the position or due to margin shortage exchange squared off seller's position and they liquidated. This exit of short seller causes the sharp increase in the price and a short squeeze is formed.

Advantages and disadvantages of this strategy.

Every strategy in trading has some advantages and disadvantages, same applies to short squeeze also.

Advantages

• It gives opportunity to trade and earn in bear market.
• Since it is a leverage position, so a trader can make trade with low capital, which increases the percentage return on capital.
• Short selling can be used to hedge the cash buying position and protect the trader/investor in case of sharp decline in prices.

Disadvantages

• In the condition of short squeeze, as price increases sharply, a trader can be liquidated and incurred loses beyond his limit.
• To make a short position, the trader has to borrow the asset to sell it and has to pay interest for that.
  

Show the Short Squeeze strategy on a Steem/Usdt chart and explain.

STEEM/USDT chart

By observing the STEEM/USDT hourly chart, I found 2 short squeeze pattern (29th Aug 2023 and 2nd Sept 2023). In both the situation price of STEEM was going down but after a certain fall a sharp up move is observed. In both the cases, the up move was around 5% in an hour.

Conclusion

In a nutshell, Short Squeeze is a situation which can be a nightmare for any short seller but at the same time gives an opportunity to earn in falling market where everybody selling in fear and short seller earn money. A small trader or retail trader can take advantage of this situation by observing and making trade in sharp rise. This is also very profitable for scalpers who trade for very short term.

I invite @okere-blessing , @aaliarubab , @pijushmitra to participate in the contest!