Fun fact…I hate trading short squeezes.
Why?
Because they’re super volatile and scary.
However, trading is all about adapting. I wouldn’t be in this game for over 20 years if I stuck to the same strategies as when I started.
And nothing, in my opinion, has been more profitable this year than trading short squeezes.
That said if you haven’t traded them or are thinking about starting… there are 4 essential things you must know.
Discover what they are and how they can potentially shift the odds in your favor.
Table of Contents
#1 The Catalyst Isn’t News Driven
Most companies that pump their stocks up via press releases experience a small pop and then a fade.
The move was so obvious that early on in my career, I would short these pumps.
However, the promoters and pumpers have been sort of low-key this year. Maybe it has to do with what’s happening to the Atlas Trading Group, but for whatever reason, we’re not seeing as many pumps as we used to.
Ironically, we’re seeing some of the biggest squeezes I’ve witnessed in my career.
All thanks to short sellers.
Many of them hang out in the same chat rooms all looking to take advantage of these horrible stocks on the downside after they’ve experienced a massive spike up.
It makes sense.
But here’s where they mess up.
First, there are way too many traders with the same idea. In other words, it’s a very crowded trade.
Second, they are often focused on stocks with relatively small floats. This becomes a supply vs. demand issue.
And because there is a limited supply of shares and everyone is trying to get them…they are getting squeezed easily.
Every time they’re covering, they’re adding to the buying pressure…causing greater squeezes.
And while short sellers are eventually right in the end…their strategy is difficult to execute from a psychological and risk management perspective.
Yes, you will be right, but can you absorb a move from $1 to $10?
Most traders can’t…
#2 Shorting Is Expensive
Many of the stocks being squeezed are hard to borrow. In other words, short sellers have to locate shares to borrow…often for a hefty fee.
And here’s another thing.
Since buying stock is free at most major brokerage houses…there’s a ton of shady brokers now promoting they have the best locates and prices.
What’s happening is some of these brokers are over allocating shares.
Which only creates bigger and bigger squeezes.
#3 There’s A New Playbook
I wish I could trade the same setups as I did from when I first started. I probably wouldn’t even trade, I would have my strategies automated by now.
But trading isn’t that simple.
The markets are changing and because of that, you must also adapt.
For example, check out the chart below on TPST:
On the left of the chart, it shows last Friday’s price action. As you can see, it had a big spike up and then failed…
Moving onto the right of the chart, you’ll see Monday’s action…the stock broke above Friday’s previous highs and continued to surge.
In the past, I would advise my students to stay away from one-day runners that failed.
However, that’s not the case in this market.
That’s why you have to be open-minded…something short sellers have a hard time being.
And since there are no hard rules on these setups you’ve got to be super nimble.
You can check out how I traded TPST here and here.
As you can see, these plays can be tricky, that’s why you must always focus on your risk management.
2 days in a row with 1 win & 1 loss, both days my wins have been nearly double my losses…that's how you can grow an account w/just a 50% win rate, buying into the uptrend on heavily shorted plays like $ICU $MDAI $TGL & selling when shorts panic/create solid intraday spikes!
— Timothy Sykes (@timothysykes) October 19, 2023
#4 Ride The Hype…Take Profits
One second your long stock position can be squeezing to day highs and within the same candle spike down and collapse.
Remember, we are dealing with some crappy companies here.
They’re only squeezing because of stubborn short sellers, not fundamentals.
That’s why I’m usually in these trades for just a short amount of time.
I’m aiming for quick profits…or cutting losses quickly.
They’re just trades to me…nothing more…nothing less.
Be better than the short sellers and focus on risk management.
Be grateful to them for giving us these opportunities…and lock in profits when you get them.
Not every trade is going to be a big winner or even a winner at all, but successful traders know how to minimize their losses so we can show them, fakes let their losses grow & pretend they never happen so their followers don't realize how shitty they are…such a sad industry!
— Timothy Sykes (@timothysykes) October 19, 2023
Dive Deep Into the Short Squeeze Phenomenon! 🚀
While I might hate trading short squeezes, there’s no denying they’re currently one of the most profitable strategies out there.
And let’s face it – understanding this dynamic can be the difference between a successful trade and a missed opportunity.
🔥 Navigate the risky waters of the current market with proven tactics.
🔥 Decode the key reasons why short squeezes are dominating and how to profit from them.
🔥 Learn how to leverage this market situation, even if it’s against your typical trading nature.
In our upcoming live training session, We’ll be pulling back the curtain on how my students and I have adapted to this trend and the secrets behind their success.
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💡 Ready to transform how you view and trade short squeezes?
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