No other concept helped me profit as a trader than the short-squeeze.
It’s like short-sellers don’t realize who they’re dealing with…
They keep betting against stocks near their highs thinking ‘Gee, this is so overbought, let’s bet against it.’
If you want to lose money, then follow those shmos.
For those of you who enjoy success, I want to teach you how to use short-squeezes to smash these short-sellers in the face.
If they want to bet against clearly bullish setups, they don’t deserve their money.
So let’s help them part with it, shall we?
The glorious short squeeze
You might think you know the short-squeeze.
But it goes so much deeper than most people realize.
This is one of those times where when you win, someone else is definitely losing.
You see, you’re taking the exact opposite side of a trade from someone, hoping they give up.
Because when they cry uncle, that’s when you hit pay-dirt.
The concept is relatively simple.
Traders that bet against a stock do it by borrowing shares on margin from their broker. They sell these shares, paying a small fee while the trade is open.
When the stock goes down, they buy back the shares and hand them back to the broker less the fees.
It’s kind of like a legalized loan shark, just no busted kneecaps.
When stocks go against the trader, they lose as prices rise.
However, they can lose way more than they have in their bank account.
See, when you buy a stock, shares can go to zero and you lose your investment.
Shorting a stock, on the other hand, could lead to infinite losses (in theory) because you never know how high a stock might go.
Couple that with traders using leverage (borrowing as much as 4x the amount) and you can see how losses get out of control quickly.
Brokers aren’t stupid. At some point they cut off the traders. They force them to close out their trades and cut their losses.
When you own shares of stock you sell them to close out the trade.
Short-sellers buy the stock back to close out the trade.
And here’s where the fun comes in.
If enough short-sellers start covering positions, it drives prices up quickly. That forces more traders to cover their shorts, inducing more buying.
Pretty soon you get a cascade of buy orders that send shares up violently.
Now, imagine you got in just before takeoff. That’s what I do in Weekly Money Multiplier.
And I’ll give you a taste of that here.
Short squeeze candidates
You’ll come across a lot of terms related to shorting or short floats or short ratio.
Here’s the one that matters most.
Take the total shares currently sold short and divide it by the total number of shares available for trading.
This ratio tells you how many shares of stock are used to bet against the company compared to how many are currently trading.
The higher the percentage, the greater the chance for a short squeeze.
My preference is for anything that has a 15% ratio or higher. Anything above 30% is ideal.
You find high ratios with stocks that are extremely beaten down. These are companies like Macy’s and other retailers that are on the verge of bankruptcy. These are the companies that I want to trade.
I’m looking for companies that are near recent or all-time highs that carry a high ratio. These are the ones with strong bullish trends that no one in their right mind should be shorting.
And yet there they sit.
Take Stitch Fix (SFIX) for example.
I pounded the table for the last few weeks stating that the stock has the potential to rip higher.
And what did it do this week?
You be the judge.
SFIX Daily Chart
Combining short floats with my TPS Setups, I design trades that don’t just work for me but pack an extra punch.
Make every trade count for something
I get it.
You trade around for years, skipping from indicator to indicator, hoping to find that magic bullet.
I did the same thing for nearly a decade.
Working with RagingBull, I honed my skills and became a successful trader in my own right, turning my $38,000 account into over $2,000,000.
Stop wasting your time buying books and learn how to REALLY trade the markets.