The short squeeze definition from Investopedia is a situation in which a heavily shorted stock or commodity moves sharply higher, forcing short sellers to close out their short positions and adding to the upward pressure on the stock. Short sellers are being squeezed out of their short positions, usually at a loss. Short squeezes are generally triggered by a positive development that suggests the stock may be embarking on a turnaround. Although the turnaround in the stock’s fortunes may only prove to be temporary, few short sellers can afford to risk runaway losses on their short positions and may prefer to close the position even if it means taking a substantial loss.
So lets break this down for everyone. These can be amazing situations when you are on the long side of the trade, but if caught short devistating. If you don’t believe me read this article about a guy that was short $KBIO back in 2015 and it gapped against him.
Many times you will see the short squeeze with a lower float stock. To me a lower float stock is one that is less than 20 million shares in the float. So now you might be asking what is the float of the stock. So the float of the stock is the amount of shares that can be traded by the public on the public stock exchange. There can be floats less than 1 million and ones bigger than 1 billion.
So I have 4 stocks up above that have all had short squeezes. These are not the only ones. There are many traders and trading rooms that follow the low float stocks for these short squeezes. The Floats for the stocks above are: NAKD 8.3mil, GEVO 6.85mil, STMP 17.09 mil, RKDA 3.18mil. This massive surge to drive a stock from 5.65 up to 65 in 7 days is totally irrational and usually the case of a short squeeze.
The easiest scanner that I have used to find these moves is Trade Ideas. If you are a current subscriber of Trade Ideas you can copy this cloud link and upload it into your cloud to add to your scanners. That is one of the coolest share great alerting windows.
These stocks move very quickly and make amazing gains. Here is a sample from RKDA this week.
Here you can see this stock almost doubled overnight.
So what happened. There was a catalyst or news anouncement that was released saying that RKDA is entering into the cannabis sector. Sure enough that was enought to get people on board to buy. You can see the trip up to 10.40 was not a straight move up. It ran premarket the orange area from 5.63 up to 9.4 and then a sell off down to 7 in the first 15 min of normal trading hours. So these stocks are great for volatile moves, but you have to be prepared to act quickly. Many of the traders that trade these type of stocks actually use hot keys with their brokers to make sure that they execute their trades quickly without having to enter the order while the stock is moving against them.
These stocks if you can get shares to short are great when it continues to the downside, but I will show you an example where the shorts of RKDA last year thought it was going to be an easy ride down with a close at $12 and it resulted in the stock running to $52 the next day.
All of this is based on supply and demand. The low supply (float) and low float traders buying and shorts being squeezed (many times forced to buy back the stock ) causes dramatic life changing moves.
I love hearing feedback from you. It makes my trading more personal and I like to hear how I can help you. If you have questions or comments you can contact me here or on Profitly, Twitter (@jane_yul), Instagram (missairplanejane), LinkedIn and Facebook (@sugarairplanejane). email@example.com or YouTube
My book is available at Amazon FMJ Trust Transition Trade: How Successful Traders Said It, Did It, and Lived It . As well as Barnes and Noble, Indigo, Chapters,and more.
For my charts I use tradingview.com which offer free charting and paid services
This blog is for information purposes. I am not a registered securities broker-dealer or an investment adviser. The information here is not intended as securities brokerage, investment or as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any security or fund.