Are you watching this?
Nikola Corporation (NASDAQ: NKLA) has climbed as much as 52% in the last three trading days…
Tupperware Brands Corporation (NYSE: TUP) has soared a whopping 769% in less than two weeks!
And T Stamp Inc. (NASDAQ: IDAI) squeezed 102% in a single day yesterday…
Not to mention C3.ai, Inc. (NYSE: AI) and Carvana Co. (NYSE: CVNA) which are multi-month runners still holding near their highs…
And despite these companies being in different industries … They all have one thing in common…
They’re ALL SHORT SQUEEZES.
And the next one could be around the corner.
That’s why I want to give you actionable tips on how to trade the market’s hottest trend.
Stick with me, and you’ll learn how to spot and take advantage of short-seller momentum.
Three Things to Look For in a Short Squeeze
If you want to take advantage of short-seller momentum, you have to know what to look for and when to get in.
To determine that, I look for three things…
Panic Points and Panic Buying
When short sellers panic, it creates opportunities for day traders.
We love to target key levels like VWAP reclaims and high-of-day breaks where short sellers are most likely to panic.
When they start to cover their short positions, it leads to panic buying, pushing the stock’s price higher.
To take advantage of this phenomenon, you must know what levels are important to short sellers. That way you can buy at the same time the shorts panic and ride the momentum.
Some key levels to watch are:
- The red to green level which is the previous day’s close.
- High of the day.
- The previous day’s high.
- The VWAP indicator.
- Whole dollars and half dollars.
Different levels come into play for different patterns. Watch this to learn about key levels for day trading.
But one of the best patterns for taking advantage of over-aggressive short sellers is…
The Dip and Rip Pattern
One powerful pattern to look for is the dip and rip.
This happens when a stock opens lower after a big premarket move, and short sellers jump in to take advantage of the weakness.
Smart short sellers might exit when the stock reverses and reclaims important levels like VWAP.
But the less experienced traders wait until the stock breaks the high of the day or the premarket high…
They start to panic and that’s when we strike by buying the stock along with them.
Tupperware Brands Corporation (NYSE: TUP) had a dip and rip last Thursday before soaring 61%.
TUP chart: 1-day, 5-minute candle — courtesy of StocksToTrade.com
And it had another dip and rip on Monday before it climbed another 40%.
TUP chart: 1-day, 5-minute candle — courtesy of StocksToTrade.com
T Stamp Inc. (NASDAQ: IDAI) was yesterday’s squeeze du jour with a 76% gain from the rip and rip entry level…
IDAI chart: 1-day, 5-minute candle — courtesy of StocksToTrade.com
But what you need to confirm any move before you enter is…
Volume
Low-float stocks that are heavily shorted are more likely to experience extreme moves when they break key levels.
I gave you tips on how to recognize a heavily shorted stock in the Daily Accelerator yesterday.
But one key component of a massive squeeze is volume.
We like to see float rotation where the stock is trading more volume than there are shares in the float.
But we also like to see volume come in at key levels. Look back on the three charts I shared above — you can see volume increased in each stock when it made the dip and rip break above the premarket highs.
That shows you shorts are buying to cover and the buyers who want to ride the momentum are entering.
Put all three of these criteria together and you’ll be ready to make better trading decisions the next time you see a potential squeeze.
Practice makes perfect, so keep learning, honing your skills, and staying up to date on hot market themes.
If you’re serious about taking your trading to the next level, see how you can get mentored by me and several millionaire traders here.
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade