Steemit Crypto Academy Contest / S13W4 - Short Squeeze.
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Hello friends!!
Am happy to be a part of this week's engagement challenge, the topic of discussion it's quite an interesting one and I would not want to miss out.
It's is of importance in trading that some strategies should be mastered else there will be continuous losses experienced by the trader. One of such strategy is the "short Squeeze".
What is Short Squeeze? From your own opinion |
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The term short squeeze from in English language simple means when little duration of pressure. But let's see what this term simply means in crypto sphere.
A short squeeze refers to a market phenomenon that occurs when there is a cryptocurrency that is heavily sorted experiences a rapid price increase.
A Short Squeeze occurs when a cryptocurrency that a lot of traders have bet against, that price will drop but instead starts going up suddenly. Therefore putting pressure on those who traded against the cryptocurrency (short sellers) to buy it back quickly to cut their losses.
As the traders/investors battle to buy back their position to cut short their losses, causing an increase in demand, leading to an increase in the price of the cryptocurrency.
I think I have been in such position before and my experience wasn't a funny one that day.
With a couple of assets (cryptocurrencies) show an example of a Short Squeeze. Screenshots are required |
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For these examples, I will be using the asset pair;
• Tron (TRX)/USD
• Solana (SOL)/USD
To illustrate the occurrence of a short squeeze with all data collected from this year, shown shown below.
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From the Screenshots above, we can see how the prices of both cryptocurrencies were going downward (highlighted in red), meaning traders went short, and then all of a sudden, an upward increase (highlighted in green) in price occurred, this meant the traders who had initially gone short, had to buy back these cryptocurrencies to cut their losses.
This effect ended up pushing the price of these cryptocurrencies even higher bringing about the Short Squeeze.
How is a Short Squeeze formed? |
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From the explanation above, short squeezes are formed for the following reasons.
When there is a high rate of short selling of a cryptocurrency. I.e. If traders are going short, hoping that the price will go down, and then all of a sudden the price goes up and those who have earlier gone short rush to buy back the cryptocurrency to close their positions.
When there is a limited supply of that cryptocurrency with increased demand. This will intensify the short squeeze as more traders/investors try to buy the cryptocurrency. It's likened to a "Snowball effect" that leads to a bigger increase in the price of the cryptocurrency.
Advantages and disadvantages of this strategy |
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Advantages:
High potential profits: When using the short squeeze strategy, you have the chance to make a lot of money in a short time. It's like hitting the jackpot quickly and excitingly!
Psychological advantage: By using the short squeeze strategy, traders can make others feel scared and unsure. This can cause those who bet against the asset to panic and sell, driving up the price even more. It's like playing mind games and having the upper hand in the market.
Underlying market strength: When a short squeeze happens, it's a sign that the market is strong and getting stronger. The sudden increase in price and high demand for stocks or cryptocurrencies means that more people want to buy than sell. It's like a stampede of buyers, showing that the market is in a positive and bullish state.
Disadvantages:
High risk: The short squeeze strategy is like a risky bet. The concurrency might not go up in value and could even go down, causing the trader to lose money. It's like taking a chance that might not pay off.
Market volatility: When a short squeeze happens, the market becomes more unpredictable and can change quickly. This makes it hard for traders to know when to go long or short.
Limited Window of opportunity: Short squeezes don't stick around for long. If traders don't act fast, they might miss the chance to sell their position and make a profit. It's likened to a short-lived opportunity that you've to seize quickly.
High entry and exit costs: The short squeeze strategy requires careful planning and execution. This means there are more costs involved when entering and exiting trades, like fees and wider price differences. It's like paying more for the privilege of using this strategy.
Show the Short Squeeze strategy on a STEEM/Usdt chart and explain |
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Like the examples above, the STEEM cryptocurrency also experienced a Short Squeeze a few weeks back. This was announced to be the cause of the very surprising but welcoming news, that the STEEM/USDT pair is to be listed for future trading on MEXC and ByBit trading platforms.
Below is the screenshot showing the occurrence of this phenomenon.
 SC showing Short Squeeze on STEEM/USDT |
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From the image above, we can see how the market favoured the short traders as the market was in a continual downtrend, meaning traders preferred going short, then all of a sudden, this changed to an upward trend, which meant those traders who had gone short was compelled to buy back to cut their losses which ended up skyrocketing the STEEM/USDT market.
Conclusion |
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Just like I mentioned while introducing the topic, short squeeze is a strategy that should be mastered before trying it out else it might be a disaster at the end. This is why I always advice friends not to do what others are doing except they have understood the reasons or objectives..
Let me invite my friends to join this contest @lhorgic @xkool24 @ninapenda @sahmie
Thank you for reading, I will see you next time
Upvoted. Thank You for sending some of your rewards to @null. It will make Steem stronger.
Yes together we can make steem great!
Am glad I can contribute to her growth
Great post! 👏
Short squeezes can be thrilling yet risky strategy in the world of trading. Your explanation & real life examples really shed light on how it all work. The advantages & disadvantages you have outlined are crucial for anyone considering this strategy. & its fascinating to see how quickly markets can change as illustrated by The STEEM/USDT chart. thanks for the insightful post and the valuable knowledge you're sharing!
Thank you for your nice compliment my friend.
Ofcourse it is risky and am sure if am to trade I would not want to use this strategy because I don't think I am a master in it. I still need to develop my skill well.
Am glad my post was helpful to you in terms of value and knowledge.
As enticing as short squeeze can be for those who went long, it is a nightmare for traders who had gone short, as it can lead to them losing their all their assets. And with the volatile nature, no one is totally safe from the dire effects of short squeeze, like the name implies, it squeezes everyone into a tight corner.
You've made a nice entry and I wish you all the best, its been a long time we've seen your post in this community. Hope to see more from you.
Hahaha you are totally correct and guess what? No one want loves to be squeezed.
This is why I would always advice that the skill of trading should be mastered aps it is not a child's play.
I don't think people really master the skill of trading 100% as there are always surprises in the financial market, more especially in the crypto market as it is more volatile than any other. This is why when making a trade, trader now insert TP (Take Profit) and SL (Stop Lose) in positions they feel comfortable with.
You are definitely rights that's why till tomorrow trading is still regarded as risk
Greetings friend.
Short Squeeze is a good strategy for long traders if they are able to identify it on correct time and open long position at correct entry point.
You have explained every concept in your own words and I appreciate your efforts.
Good Luck for the contest.
Am glad to see that my explanation was simplified for you to understand it.
Thank you for your lovely words, I appreciate it.
Saludos cordiales hermosa amiga ruthjoe.
Excelente trabajo, muy buena explicación sobre los short Squeeze, un métodos de trading que nos da la oportunidad de generar ganancias en corto plazo aprovechando movimientos inesperados del mercado.
Te deseo mucha suerte y bendiciones.
Thank you for you amazing wishes, oh now I feel like a professor in crypto hahaha!
Thank you for your wishes too
Hello my friend, short squeeze is a beautiful strategy. I love the way you highlighted the pros and cons. You made everything clear. Your article was very insightful.
Oh ma am glad to know that my publication was insightful to you. Yes I try to make my writings clear so that even a new bee can understand it.
Thank you
This post has been supported through the account Steemcurator06 for containing good quality content.
Curated by : @pelon53
Thank you so much @pelon53
I agree with you that short squeeze occurs when traders bet that price of a particular crypto currency would drop but everything gets opposite to that and it could be due to a positive news and a positive sentiment in market could cause rise in price that in turn cause short squeeze and it could be positive and could be negative that's why it is very interesting and exciting but before getting involved in any kind of this activity is very important to have thorough search.
I wish good luck and success to you in this engagement challenge
Talking about trading techniques that should be mastered short Squeeze should be on the list because it is a very powerful technique that only few traders know and you know as of this technique could cause you to lose so much money so therefore it expected to add Short Squeeze to the store of technique we have.
Thanks for going through wishing you success, please engage on my entry https://steemit.com/hive-108451/@starrchris/steemit-crypto-academy-contest-s13w4-short-squeeze