Nothing gets me fired up to trade like a short squeeze in the making.
The 200%, 500%, or even 1,000% percent pops* you hear about don’t happen without the panic-buying of short sellers caught on their back foot.
You can spot them a mile away when you know what to look for.
And small-account traders looking for an edge should absolutely invest time in screening for potential short-squeeze conditions.
It takes practice. But over time, you’ll grow your account and gain confidence from knowing that price action really does point the way to profit.
At the end of the day, it’s as simple as supply and demand.
Except a short squeeze comes with very specific conditions to indicate a massive imbalance in the making that only a soaring stock price can resolve.
They begin with a one-day pop.
And you know you got an epic short squeeze in the works when you see…
Low Float
Once you spot a stock making a large move higher, you want to check its float.
Stocks with a lower float are more susceptible to short squeezes.
This is where supply and demand principles come into play.
Stocks with a low float have a limited supply of shares, which can drive up the price when there is high demand.
The float refers to the freely tradable shares of a stock. And low float means there is a limited supply of shares available for trading.
When demand suddenly spikes, the price will go much higher than for a stock with a lot of shares on the market.
I consider stocks with less than 10 million shares as “low float.”
Some have extremely low floats, such as 800,000 shares. When you see these pop, pay close attention because a short squeeze on these stocks often results in rapid price movements and extended multi-day runs.
Short squeezes often result in stocks moving significantly over several days, not just on the first day.
So, don’t worry when you miss the first big move because epic short squeezes often play out over days.
Catalyst
Another key condition to look for is a catalyst such as news releases. These are often what drew buyers into the stock in the first place.
Dubious news is the best because it draws in both buyers (who may believe the news) and short sellers (who may see the news as an opportunity to bet against the stock).
The interaction between these two groups creates volatility and increases the potential short squeeze. This is what makes short squeezes so powerful.
But never get sucked into believing the news. Focus on the chart and stick to your plan.
The Final Alignment
The final tip is to look for stocks with unusual trading volume.
This indicates increased interest and potential for significant price moves. High volume, in conjunction with the other factors mentioned, can signal a ripe environment for a short squeeze.
When you find these three conditions aligned with that first-day pop you’ve got the perfect conditions for a short squeeze.
Call it a short-squeeze syzygy.
And with markets on a tear, short squeezes occur more often in the past.
But according to my buddy and day-trading legend Tim Sykes, we ain’t seen nothing yet.
He’s forecasting a $2 trillion shock.
One that will fuel a rally even bigger than what we saw launched in 2020 by COVID stimulus.
It hits in less than 30 days. And he’s assembled an emergency briefing to help you prepare.
And profit from this rare alignment of chaos and opportunity.
Until next time,
Tim Bohen
Lead Trainer, StocksToTrade
*Past performance does not indicate future results