Short Squeeze Highs Never Last Forever
Short squeezes are known to generate tremendous gains. However, these gains are inflated by shorts covering their position. So, once the short squeeze is over, we tend to see tremendous declines.
If you’re looking to take advantage of this phenomenon in the market, it’s important to know when to call it quits. There’s a high potential for losses if you buy and hold a heavily shorted stock. At the same time, you’ll miss a good portion of the gains if you sell too early in the midst of a short squeeze.
With that said, if you’re going to go after the gains that can be seen in these events, you’ll want to keep your eye on the chart. Pay close attention to volume and price action. When it looks like the gains are headed for a reversal, they most likely are. Sell out and count your profits before they turn to losses.
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