Here’s another example with Nokia Corporation (NASDAQ: NOK)… NOK YTD daily chart - courtesy of Then the share price usually craters back to earth just as fast as it shot to the moon. And the trading volume will also be above the stock’s daily average.Īfter a huge rally, short squeezes usually end in dramatic blow-off tops. What Happens to a Stock Price After a Short Squeeze?Ī successful short squeeze sends the underlying stock WAY higher. Oddly enough, sometimes the worst companies in the world become the best-performing stocks in the world - all because of short squeezes. See if you can guess where the short squeezes happened (hint: late January and early June).
Look at this chart for Blackberry Limited (NYSE: BB) for one example. But when you short, your losses can be exponential. When you go long, you can only lose the money you put in.
Going long is typically less risky than short selling … Shorting involves margin and borrowing shares on a stock that soars way past your initial investment. What you must know is that you could lose more money that’s not even yours if you borrowed it using margin. It’s a way to sell the stock before you buy it. Then you buy the stock at a later date for a lower price. When you short a stock, you borrow shares of a stock from your broker. They also show how risky shorting can be… The Dangers of Shorting Just look at meme stocks to understand the power of short squeezes.
They look for heavily shorted stocks, then weaponize that short interest into a bullish squeeze. Oversized short positions are the ultimate target for short-squeeze traders. It’s a strategy to profit if the stock price drops. Study any catalyst that can spike a stock.Ī trader who takes a short position is forecasting a drop in a stock’s price in a given period.