Greetings to all of you!
Today the topic that I have choosed for discussion is short squeeze that was already decided by the team so I am sharing my views about this topic.
When a stock shorts heavily and it's price shoot up then it cause short sellers to become scrambled and then buying back the stock to cover their positions so it create mess of buying that again drive the stock price more higher which creates squeeze on the other hand.
I find short squeeze a very thrilling situation as well as an exciting situation because it is just like to watch high stake show down between short sellers and long investors because when short squeeze occurs then it cause rapid surge in the price of stock which gives reward to those who are long on stock so it gives victory to the bulls.
Short squeeze according to me could be very risky for short sellers when they get in the squeeze so for this you can imagine that you are in a position where you have borrowed some shares of a stock and you have sold them and now you have hope to buy them again sometime at low price but suddenly you hear the news that stock starts soaring so after that you would be forced to buy it back at higher price then that which you anticipated before.
When there is a combination of high shot interest and positive news then chances of short squeeze becomes more bright because it also create strong buying pressure. There are some traders that are more vigilant for looking for stocks with high short interest and after that they hope to ride the wave of significant short squeeze.
If we see a random example then we can see in 2021 when there was noticeable squeeze in gamestop and this stock experience short squeeze and in this there was a group of investors on Reddit's WallStreetbets forum that were banded together and they caused price of stock to drove up which cause significant loss for that stock that were responsible for heavy shortening of stock so it was a Devid vs Goliath moment that also seeks attention of the whole world.
There is a one very common example of asset that I am sharing here and there was a no table short squeeze with the cryptocurrency dogecoin so I would like to share all scenario behind it along with the screenshot.
When Dogecoin starts then it was started as meme coin but after that it gained attention after the endorsements from high profile individuals and specially from Elon musk.
In the start of 2021, there was a huge surge we see in the price of dogecoin and it was due to multiple factors that include social media hives and interest of increase buying so there were many investors that tries to avail this opportunity for making their profits and for jumping into the market which in turn drive up the price of dogecoin.
There were significant number of short sellers that also had bet against dogecoin because they were expecting that there would be a decline in the price of this coin but as the price of dogecoin were increasing then these short sellers find themselves in scrambling position.
As the price were increasing continuously that's why short sellers were forced to have a focus on covering their positions by again buying dogecoin at high prices so this buying pressure creates short squeeze that again increase the price of dogecoin.
So in this scenario you can conclude that this short squeeze finally resulted into loss for all those who sorting cryptocurrency but for those who were long on dogecoin also enjoyed substantial profits that's why it is said that short squeeze is very thrilling and interesting also that it can be a cause of significant profit and loss as well.
Before you know about formation of short squeeze first of all it is important to know that what is short selling so short selling is a trading strategy so this is a strategy in which someone short sells an asset or cryptocurrency which they borrow and then sell it by thinking that they would see a decline in its price and they also made a plan that they will buy it again at low rate and they would gain a profit.
So now I am able to tell that what are the sum of basic steps that are involved in formation of short squeeze.
If there is a cryptocurrency which have high level of short interest then short squeeze typically start with that because it means that there are great number of short positions in relation to total number of shares are coins that are available.
If there is a positive market sentiment or there is a circulation of positive news then it can also cause a short squeeze because true strong earning reports and news of influential figures like Elon musk may attract more buyers that cause buying pressure.
When more people accumulate and start to buy asset then it create Rush and mess of buying asset which increase buying pressure by increasing demand of a specific coin and it also cause increase in price and in return cause short squeeze.
When price of a specific Crypto currency rise then it cause short sellers to be under pressure because they know that there could be potential losses for them now so this situation could be another cause of short squeeze.
For the prevention of more and more losses and closing the positions short sellers are forced to buy the asset back so it creates more demand of asset which increase the price in return.
When price rise at continuous extent then short sellers becomes scrambled and they start to buying a particular cryptocurrency back so it starts feedback loop in this way because it creates a cycle of buying and short covering that may also intensifies the quiz.
When buying pressure from investors and short sellers rush for covering their positions combine then there could be a spike we can see in price which could be very sharp.
I am explaining advantages of short squeeze in tabular form below
Advantages of the short squeeze strategy
| Profit | If we can get significant profit from short squeeze then this is one of the greatest benefit of it so if you are very precise in the identification of specific cryptocurrency which have short interest then you can make significant gains and profits so it could be very lucrative if there is someone who is early buyer before getting squeeze into momentum. |
|---|---|
| Market Inefficiencies | market insufficiencies exposure can also be caused by short squeeze. So when short squeeze occurs then it reveals disparity between value of asset that is perceived and between the actual value so traders get opportunity in this way to attain profit from these insufficiencies. |
| Increased Market Liquidity | Short squeeze can also be very significant in the increase of market liquidity because when more buyers enters market for taking profit of squeeze then it cause trading volume to rise which increase and it becomes more easier for traders for entering and exiting the positions so that risk of slippage may also reduce and overall market efficiency could also be improved. |
Here I am explaining some of the disadvantages of short squeeze.
Disadvantages of the short squeeze strategy
| Timing concerns | Sometimes it becomes very difficult when we have to predict exact time of short squeeze to occur so it would be very challenging but we should be concerned about time for the occurrence of a short squeeze so for analysing it there is a need of market analysis and identification of high short interest as well as market sentiment because if you are not good in timing prediction then you may face great loss. |
|---|---|
| High Risk | Short squeeze is not very easy to predict so we can say in other words that it is too much volatile and unpredictable in its nature so price movements could be very short in both directions either they are negative or positive so if you fail to manage your risk then substantial losses you could face in return. |
| Limited Availability | In all markets not for every time we find opportunity of short squeeze that's why it have limited and they are very difficult to search out so if you are good in doing extensive research then you can find good opportunity of short squeeze. |
| Ethical Considerations | There are some investors who also have some ethical considerations while they want to participate in any short squeeze because short selling can also be considered as betting against a company or a particular cryptocurrency that's why is very important to also considered your own comfort level as well as your own values before engaging in any shorts squeeze strategy. |
Short squeeze that I am showing in the screenshot on steem/usdt chart is of a month before and this is a short squeeze that happened in 2023 so again if we apply the scenario then it was the same that there were positive news circulating at that time and short sellers that were predicting decline in steem price starts to buy the steem by thinking that there would be a decline in its price.
When there were a lot of short sellers who buy steems then buying pressure increase which in turn cause price of steem to pump and in this way shorts squeeze occurs at that time as I am showing in screenshot above.
Due to rapid increase in the price of steem traders that have shorted assets decide to buy them back for covering their positions and in this way it create a sharp increase in price again which cause a short squeeze.
I want to invite here
@m-fdo
@suboohi
@radjasalman
@ripon0630
@msharif
To participate 😀
Upvoted. Thank You for sending some of your rewards to @null. It will make Steem stronger.
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Your post has been successfully curated by @kouba01 at 35%.
Thanks for setting your post to 25% for @null.
We invite you to continue publishing quality content. In this way you could have the option of being selected in the weekly Top of our curation team.
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Thanks a lot @kouba01 ❤️
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Thank you for sharing insights into short squeezes, @sahar78. Your explanation of the Dogecoin example and the advantages and disadvantages of this strategy is good snd informative.
The Steem/USDT chart illustration adds clarity to the concept. Well-presented analysis!
Success in the contest .
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I want to say you thanks very warmly that you give your precious time to my entry and visit here and your words are very nice for me and it seems that you read my post carefully and pick some of the points for talking to me about my entry and yes there could be different advantages and different disadvantages of short squeeze but its up to US then we are getting engaged in such kind of activities so we should not be dependent on others for this and we should analyse on our own first of all and then should take such kind of decision.
I wish success to you in this engagement challenge I also visiting your entry which was very informative for me also
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If you know how to use this training technique you would generate passive income or would I see massive profit because the profit or uptrend that follows a short squeeze is so much that it could produce millions.
in no distant time
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Thank you so much for your comment at my post and yes if you know to manage time and you have talent to check proper time of start of short squeeze and end of short squeeze then you can be a millionaire and you can gain a lot of profit as you are saying.
I would also like to visit your entry and I wish you success in advance and thanks again for commenting at my post it means a lot for me
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