What is a short squeeze?
If you’re betting on a decline in stocks, the market is constantly working against you. Short sellers are constantly betting against the trend, hoping to catch a one-time blip that sends a stock down.
Since they’re charged a fee for borrowing the shares they short, the clock starts ticking for short sellers as soon as they place their trades.
Also, notice short sellers close their trades by buying back shares. So short sellers get really nervous when they see shares of the company they’re shorting moving higher. The upside is unlimited.
That means short sellers can suffer devastating losses if the stock keeps moving higher. And that’s essentially what creates a trading opportunity for us.
You see, there isn’t only one or two investors who shorts stocks. There are thousands of them. And they often are shorting the same stock.
So if shares start to move higher, many of those short sellers will close their trades to limit their losses.
They have to. Otherwise, they may go bankrupt. In some cases, their brokers will force them to close the trade if short sellers are too deep in the red and can’t come up with more capital, a phenomenon known as a “margin call.”
As short sellers are buying up shares to cover their short positions… the stock gets “squeezed” higher in a matter of weeks, or even days, giving us an opportunity to profit from the vertical trade.
You can find more detailed information about short squeezes and what causes them in the report The Vertical Trade System: How to Double and Triple Your Money in a Matter of Days. Simply click here.
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