Steemit Crypto Academy Contest / S13W4 - Short Squeeze.
Trading is an art so many people are into and many others want to start their journey in it. However, there are many styles and strategies they need to learn and know to ensure their funds are safe in the market. One of these strategies is the short squeeze. This strategy can either make or mar one as a trader.
The contest tips will help to understand the topic the more. Please follow up dear @drhira @steemdoctor1 and @yancar to take part in this contest
What are Short Squeeze? From your own opinion.
Short squeeze is a condition that occurs in the market when many traders enter a sell or short a particular crypto currency and all of a sudden, without any good fundamental analysis but just a positive news, the price of the crypto asset starts flying up, leading the short sellers to go into panic buying of the asset (Dollar cost Averaging DCA) to cover up their losses possibly still holding their short position without being liquidated. While some sell off their holding and buy to cover up their losses.
Their panic buying will lead to a frantic increase in the price of the asset. At that point, the demand for the asset becomes more than the supply, making the price rise astronomically.
It can also be referred to as bear trap. This causes much losses to those trader that is shorting the asset if not managed well.
With a couple of assets (cryptocurrencies) show an example of a Short Squeeze. Screenshots are required.
I will be using the asset pair of Ark/Usdt to illustrate short squeeze. This just happened quite recently in the crypto market.
Based on the market bearish sentiment, many were expecting the price to fall from where it was at $0.4575. Many where expecting a serious dump in the market. So there was a lot of sellers in the market.
Whet happened later caused quite a stir. The market pumped astronomically to $0.56, causing short squeeze, liquidating many short seller, while many DCA or added to their position to still be in the market.
(from tradingbiew.com)
The screenshot above showed what happened just this October.
How is a Short Squeeze formed?
Let us remember that short squeeze occurs when the price of an asset rises quickly, causing short sellers to exit their short positions to cover up their losses.
As they do this, they create further demand in the asset, hence fueling the surging price. Other traders who are bullish also enter buy on the asset, all contributing to the short squeeze.
There are several factors that can lead to the formation of short squeeze.
👉 When a crypto asset have high short interest ratio, there is a very good possibility of a short squeeze. So always check out the short interest ratio versus the long interest ratio.
👉Always look out for high volatility in the asset. It can be a tell-tale sign that a short squeeze is about to happen. Once short sellers start leaving their short positions, it will lead to increased volatility.
👉There is need to always look out for news that may be a catalyst to surging bullish price. It may also be a report from the company that is expected to be bad causing many to short sell, if there is a better news that came, it gives rise to short squeezing.
👉Always check the current trend of the asset. If the downward trend is already exhausting, it can lead to short squeeze, since holders in the direction of the trend will sell off to take profit in the process.
Advantages and disadvantages of this strategy.
Advantages
it provides an opportunity for seasoned traders to make so much profit within a short time.
it provides the volatility needed for a market to be vibrant.
it is also a way of learning for enlightened traders. Helping them to know market dynamics and its psychology.
it provides an insight on how to manage risk when it occurs and still be profitable.
Disadvantages
° It leads to lots of losses and other resources by the short sellers.
° it throws many of them into debt, because of their inability to pay back what they borrowed. Thus leading them into bankruptcy.
Show the Short Squeeze strategy on a Steem/Usdt chart and explain.
Steem/Usdt had a shorter squeeze some days ago or about 3 weeks ago. The market was entirely having a bearish sentiment.
Then there came a little bullish movement and many felt that it was not going to hold because of the big red candle on the charts 4hr time frame.
From the chart below, we can see the serious accumulation that went on in the boxes area of the chart.
(from tradingview.com)
Due to this full bodied short candle stick, many short sell this asset pair expecting it to go downwards the more.
At this point, a short squeeze presented itself for the bulls. There was a positive news that came for the steem coin which led to a surge in its price.
The price rose from $0.1730 from the 19th of October 2023 to $0.3322 on the 24th of October 2023.
The short sellers were squeezed out of the market since they exited their positions and bought back steem to cut down on their losses.
We can now see how to apply the short squeeze strategy for trading assets.
Thanks for reading through.
This is my introductory post here
Your explanation about all concepts is great. You have explained in your own words. If we can identify this opportunity in the market at correct time, then we can make good amount of profit.
The charts you have provided shows an example of Short Squeeze and It will help in understanding about this concept.
This was recent pump in Steem Currency and It is a good example of Short Squeeze and Another reason of this pump can be the future listing of Steem currency on MEXC Exchange.
Good Luck for the contest.
Yes you are very correct, the listing on MEXC and Bybit contributed a lot to the pump. Thanks so much for going through my post.
Excelente amiga como siempre con mucha didáctica y enseñanza. Ciertamente una de las desventajas de Short Squeeze está en la grandes pérdidas de los vendedores en corto y peor aún los que quedan endeudados al quedar atrapados en esta especie de trampa para osos.
Gracias por compartir, te deseo mucho éxito.
Thank you, friend!
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Where's short squeeze could dent in capital of any short seller in a very short time, on the other hand, it is an amazing opportunity for any bull trader and scalper. Your explanation was nice. Thanks for sharing.
Yeah, it creates an opportunity to make money for the long traders. I feel that even the short sellers use it as a strategy too to make money for themselves. The most important thing is to have extra funds.
Saludos gran amiga ngoenyi, muchas gracias por la invitación, esta mención no me había aparecido en mis notificaciones pero igual estoy por acá apoyandote.
Felicidades por otra buena participación en estos retos de la academia, esta vez toco un tema de inversión o un método trading para aprovechar movimientos en el mercado inesperados, muy buena tu explicación, hoy debo estar realizando mi participación, te mencionaré para que me leas.
Feliz y bendecido día.
I will be looking forward to your entry. Thank you for bringing out the time to read through.
Postingan yang luar biasa dari anda, Semoga berhasil dalam tantangan ini saudariku🥰
Hi @ngoenyi ma'm
Short summary There is no doubt that when the market pumps up or down, it fluctuates. Because of which the market goes up and they withdraw whatever capital they have from it, however, they also get rupees and a lot of profit in it, but apart from that, the small traders are also very good. There is no doubt that the capital that comes in and for us it is very good as we know that the market is doing very well today and every cryptocurrency that has gone up and that is a good omen. Especially this team is pumped up and will continue to improve and your post is excellent and you have prepared it in a very good way. Post number one post.