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What is a Short Squeeze and How Can You Profit From It?

April 14th, 2015

You may have heard of the term "short squeeze" in the past - but didn't know what it meant. I'm here to tell you what it is and how you can capitalize and profit from a short squeeze.

What is a short squeeze?

There are two players in the market. There are the "longs" and the "shorts" which are equivalent to buyers and sellers.

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Buyers are looking for the stock to head higher while Sellers are looking for the stock to head lower.

Sellers typical are borrowing shares from their brokers - then will look for the stock to head lower - they'll purchase it back at a lower price and pocket the difference. These are called "short sellers."

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The buyers or "long sellers" want to buy the stock and then later sell it at a high price.

These two sides are always pulling and tugging against the stocks. When the stock starts going lower and lower and "short sellers" are making more profit - you start having "value buyers" coming into buy stocks. Because of this - the stock starts to go higher and forces some of the "short sellers" to buy back their stocks at a profit. And this forces the stock to get higher, which means more players will buy the stocks.

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How do you find these stock that are prone to short squeezes?

You'll want to look for stock that have a high short interest. The more percentage that the stock is short, the more likely it will be to have a short squeeze. And this is due to the sheer fact of the tug-of-war with the balancing of the stocks. The more people that are short - the more the stock with bounce. The stock may not bounce, but it's more likely with a high short interest.

As you watch these heavily shorted stacks - you'll start to see these opportunities to capitalize on these short squeezes. Remember, there's a lot of different ways to make money and strategies in the market - but not all are the right strategy for you. Think of short squeezes as another tool in your toolbox when it comes to the stock market.

Author: Sasha Evdakov

Sasha is the creator of the Tradersfly and Rise2Learn. He focuses on high-level education speaking at events, writing books, and publishing video courses on business development, internet marketing, finance, and personal growth.

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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This website and content is for information purposes only as Rise2Learn, TradersFly, and Sasha Evdakov are NOT registered as a securities broker-dealer nor an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Rise2Learn, TradersFly, and Sasha Evdakov cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Rise2Learn, TradersFly, and Sasha Evdakov in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Rise2Learn, TradersFly, and Sasha Evdakov accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.