Chasing The Short Squeeze Can Be Dangerous
There’s no denying the fact that a short squeeze played right could lead to gains in multiples. On the other hand, there’s no denying the fact that missing the mark could lead to tremendous losses.
At the end of the day, no matter what you’re doing in the market, it’s important that you understand the risk. Heavily shorted stocks tend to be shorted for a reason. They are an indicator that the investing community is pessimistic about the potential of the stock and the company it represents.
Heavily shorted stocks are often companies that have taken part in toxic financing. With warrants waiting to be executed, heavy declines may be ahead. Companies with no product, poor products, or other struggles are often heavily shorted.
At the end of the day, if you buy a heavily shorted stock in hopes of a short squeeze and one doesn’t happen, you may take serious losses. So, always keep in mind that heavily shorted stocks are generally shorted for a reason.
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