The opposite of a short squeeze is a long squeeze – though it’s less common. A long squeeze is a similar effect that happens when longs get trapped by cascading selling pressure, leading to a sharp downward price spike. The main reason people short the market is to benefit from the high-interest rate paid out if their predictions are correct. Consequently, there is always an opportunity for short squeeze conditions, especially in the volatile crypto markets. But for those with a thorough understanding of how they work, including the conditions that lead to them, they can be incredibly profitable opportunities.
What Is a Short Squeeze? Complete Guide to Identifying and Profiting from Market Squeezes in 2025
Burry recognized early signs of weakness in the U.S. housing market, particularly in the subprime mortgage sector, which involved risky loans to borrowers with poor credit. If the price were to drop to $0, your profit would be as high as it could go at $25 profit per share. But if the trade goes against your forecast, the stock could grow to $50 (100% loss), $75 (200% loss), $100 (300% loss), or even higher, making your losses potentially infinite. The primary risk of short selling is that your prediction could be wrong, and the stock price may increase instead. And the gamble of an incorrect guess is much higher with short selling than with traditional investing. Since the long-term trend of the market has traditionally moved upwards, the strategy of short selling is seen as being risky.
As a confluence trader, he believes in using technical analysis and not relying on fundamentals or news events. He also does not use indicators and does not trade any breakout strategies. Short squeeze risk usually occurs when many stop losses are triggered at a firm price level, pushing the price higher. Some traders who weren’t out due to stop loss exit trades manually to avoid further losses, thereby increasing their buying volume.
Introduction to Short Squeezes
The aforementioned factors suggest that the $0.177 resistance level is key for HBAR’s recovery. If the token manages to secure this level of support, a rise to $0.197 could follow. This would be a crucial milestone, bringing the price closer to the $0.2 target. It’s a situation where investors who bet against a interactive brokers 2021 review stock are forced to buy it back, creating a powerful upward spiral. Stake crypto, earn rewards and securely manage 300+ assets—all in one trusted platform. Usually, you would short the stock because you believe a stock’s price will fall.
- Learn their key security features, convenience, and costs to decide which storage suits your digital assets.
- On the other hand, if the financial market does not have the opportunity for shorting, it can create a significant price bubble.
- Often, they also close their positions manually to avoid further losses.
- Whether it explodes into a bullish run or fizzles out into another rejection will largely depend on volume, sentiment, and the strength of the breakout.
- A STH MVRV value below 1.0 indicates that recent buyers are, on average, underwater, holding unrealized losses.
This imbalance indicates that long-term holders are accumulating more BTC than short-term holders are selling. According to Glassnode data, since February, long-term holders (investors holding for 155 days or more) have increased their cohort supply by approximately 500,000 BTC. Bonk’s symmetrical triangle types of dojis pattern has reached a critical stage, raising speculations about whether the meme coin will break free with force or lose steam under pressure. Bonk (BONK), one of the more energetic players in the meme coin space, is showing signs of a potentially explosive move as it coils tighter within a symmetrical triangle pattern. Burry conducted extensive research and analysis, concluding that the housing market was built on unsustainable lending practices and was due for a significant collapse. To profit from this impending downturn, he took a large short position by purchasing credit default swaps (CDS) against mortgage-backed securities (MBS).
Understanding the factors that trigger a short squeeze, such as positive news or shifts in market sentiment, is essential for recognizing and navigating these events. However, caution is crucial, as the volatility of short squeezes can lead to irrational decisions and increased market risk. To identify a potential crypto short squeeze, traders should pay attention to market conditions and any news or announcements that could potentially trigger a short squeeze.
What is a Short Position in Stocks? Simply Explained Finbold
In essence, if you sell the stock today, you’ll be able to repurchase it at a lower price later. No worries, you can safely and conveniently purchase a wide range of cryptocurrencies such as BTC, ETH, SOL, and others safely and easily on Pintu. Pintu diligently evaluates all its crypto assets, highlighting the significance of being cautious. Take the initial selling price (the higher price point) and then subtract from the buying-back price (the lower price point).
Previously, James worked as a Research Analyst at Saidler & Co., a Swiss hedge fund, where he developed expertise in on-chain analytics. His work focuses on monitoring fbs forex review flows to analyze Bitcoin’s role within the broader financial system. The critical difference is that, with a long put, you don’t have to borrow outright to buy the stock upfront and hope it decreases in value before you have to reimburse it. Instead, you merely reserve the right to do so before the end of the options contract.
However, given the poor fundamentals, the CEL price plummeted again soon after. The cause of a short squeeze can come from anything, from new updates on a blockchain to pure market speculation. A significant spike in demand can cause a substantial increase in price. Capitalize on explosive market movements with advanced trading tools designed for high-volatility short squeeze environments.
However, if the price goes up, the trader may be forced to close the position at a loss. Meanwhile, for traders or investors who already own assets that are undergoing a short squeeze, the period is an opportunity to exit the position. Before understanding the short squeeze, it is essential to understand the concept of short selling (shorting). Shorting means selling an asset in the hopes of rebuying it later at a lower price.
- It can also happen simply because traders manually close their positions to avoid even greater losses.
- On this page, you can view the long/short ratio for Binance Futures in real-time.
- A short squeeze is a one-sided market distortion to sell all available assets.
- This metric is especially important for less liquid stocks, where even moderate short interest can create significant covering pressure relative to typical volume.
- With the volatility of cryptocurrency prices, a short squeeze cannot be avoided.
- A short squeeze can happen in essentially any financial market where a short position can be taken.
Michael Burry and the 2008 financial crisis
Traders are encouraged to only trade with money they can afford to lose in the event of an extreme market crash and to prepare for market profits and losses. RSI is a momentum oscillator that gauges crypto value speed and changes to evaluate overbought and oversold conditions. Traders can short cryptocurrencies on decentralized exchanges (DEXs) and centralized exchanges (CEXs) that offer margin trading. Platforms like Gate.io are examples of exchanges where cryptocurrency shorting is possible. In contrast, short-term holders have distributed over 300,000 BTC, driven by a mix of profit-taking and capitulation.
How a Short Squeeze Affects Bitcoin
Explore the key differences between Ethereum and Bitcoin—from their origins and technologies to their use cases and future potential. Learn what liquidation means, its types, and how it converts assets to cash. Understand how it functions in business, real estate, stocks, crypto, and more.
Increased Volatility
Rising prices will compel short sellers to cover their positions by purchasing the asset at a higher price. Most traders probably have their exchanges programmed to automatically place buy orders up to certain limits. Once the price rises over a particular threshold, most short positions are immediately closed off, leading to a sharp price increase. Manually closing positions by repurchasing the assets is another option to stop the bleeding, so to speak. Short sellers typically leverage margin accounts, meaning they’ve deposited collateral to cover potential losses.
A limited supply for trading can cause significant price impacts with a minor and consistent increase in demand for the asset. Make sure you understand the implications of a short squeeze before you enter a short position. If you’d like to learn more about shorting and many other trading techniques, check out A Complete Guide to Cryptocurrency Trading for Beginners. Short squeezes in the cryptocurrency market operate similarly to those in traditional markets. Cryptocurrencies like Bitcoin can be shorted on various exchanges, and when there is a significant short interest, the potential for a short squeeze arises.
