Every Thursday night I send a Weekly Squeeze Report to my Daily Income Trader subscribers.
In it, I give specific instructions for trading a stock that I see benefiting from a short squeeze on Friday.
Sometimes, these plays don’t work out…
And that’s fine because my report always gives an entry price along with a stop loss level. This prevents you from losing your shirt if the stock doesn’t bounce like I thought it would.
And sometimes my squeeze candidates absolutely kill it!
That’s what happened in premarket today with my latest short squeeze candidate, Wheeler Real Estate Investment Trust (NASDAQ: WHRL).
If you want to be part of that short squeeze excitement and even better, profit big like we did on WHLR, subscribe to my Daily Income Trader service today.
As a subscriber, you’ll get five daily webinars, my Weekly Squeeze Report, access to our proprietary trading tools, including Oracle, our algorithmic system, and much more…
Here’s an excerpt of what I sent to subscribers in my Weekly Squeeze Report last Thursday.
Along with that report is my rationale for choosing the stock as well as a video explaining it all.
And on Friday morning, this is what we saw…
WHLR 2-Day, 5-Minute Candles Chart; SteadyTrade
WHLR ended up returning 160.87%*!
I chose WHLR for my Friday short squeeze because it faded Thursday morning and then had a resurgence in the afternoon. That resurgence creates a panic for short sellers.
WHLR broke the high of the day, and as I always say about low floaters like this one, “Everything changes at the high of the day.”
That break of the day’s high is the panic point I’m talking about; it’s what we want to see when we’re looking for short squeezes.
WHLR isn’t my only successful short squeeze, not by far…
Here’s one from the beginning of August for MGO Global (NASDAQ: MGOL):
And here’s what happened the next day:
MGOL 2-Day, 5-Minute Candles Chart; SteadyTrade
Our short squeeze play in MGOL returned 39.6%*.
Before you start trading short squeezes, you must sign up to get my Weekly Squeeze Report…
And here’s some background on how they work and more.
First, the Basics of Short Selling
Short selling is when traders bet that a stock’s price will fall. To do this, they borrow shares from a broker, sell them at the current price, and hope they can buy them back later at a lower price.
They pocket the difference between the sell price and the buy price as profit. If the stock price falls, great!
And if it doesn’t?
Big trouble…There’s no ceiling on how high the price can go, which makes potential losses unlimited.
How Short Squeezes Work
Basically, a short squeeze is where things get out of hand, and fast. Short sellers who bet against a stock suddenly find themselves scrambling to cover their positions, sending the stock price skyrocketing in a way nobody really expected.
What Triggers a Short Squeeze?
A short squeeze happens when a heavily shorted stock (lots of people betting against it) starts to go up instead of down.
This can happen for a number of reasons — positive news about the company, a surge of buying from retail traders, the list goes on…
In the case of WHLR, it had news yesterday of a class action against the company being dropped.
In reality, this announcement isn’t a big deal, but it was enough to get the stock moving up and spook the short sellers.
As the stock price rises, short sellers begin to lose money.
When short sellers see their losses mounting, they often have no choice but to “cover” their positions. This means they need to buy back the stock they initially borrowed and sold, adding more buying pressure to the market and more momentum to the stock’s rise.
It becomes a vicious cycle and a scary time for short sellers.
That’s the squeeze.
The Anatomy of a Short Squeeze
Here’s how it all happens, step by step:
Heavy Short Interest: A stock has a high percentage of its float being shorted. This could be because traders believe the stock is overvalued, the company is struggling, or there’s negative sentiment.
Catalyst: Something happens that causes the stock to rise unexpectedly, such as good news or a product launch.
Or it could be a GameStop situation à la Roaring Kitty.
None of that matters…As long as the stock is moving up, it’s not a good thing for short sellers
Panic Among Short Sellers: As the price starts to climb, short sellers begin to lose money. They realize they need to get out of their short positions before losses get out of hand. So, they start buying shares to cover, which adds more fuel to the fire.
Buying Frenzy: The buying from short sellers creates a runaway train. More and more shorts rush to cover, and in doing so, they push the stock price higher and higher.
Add in some opportunistic long traders (those who were already betting on the stock going up), and the sky’s the limit!
How to Spot a Potential Short Squeeze
Here’s what I watch for when looking for short squeezes.
High Short Interest: Look for stocks where a large percentage of the float is being shorted. A short interest above 20% is generally considered high.
Unusually High Volume: If a heavily shorted stock starts trading at unusually high volume, it might signal that something’s brewing. Volume often precedes price action.
Positive Catalyst: Any news or event that could potentially turn market sentiment around, like those I mentioned above.
Price Action: Watch for sudden, strong price movements that go against what you’ve been seeing. This can indicate that shorts are starting to cover, creating upward pressure.
The Risks of Trading Short Squeezes
As with any strategy, trading a short squeeze can be very risky.
These moves are often fast and volatile, and you could easily get caught on the wrong side of the trade. If you’re long in a squeeze and the momentum reverses, you could lose those gains just as quickly as you made them.
And by the way, the huge short squeeze spike that WHLR experienced happened premarket. I always advise against trading premarket for new traders.
Discipline is key. You need to have a strategy for when to get in, when to take profits, and when to cut losses if the trade turns against you. My Weekly Squeeze Report handles all of that, giving you a specific entry price and stop loss.
Sign up today for Daily Income Trader today, so you can take advantage of big trading opportunities like the one in WHLR.
Have a great day, everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade
P.S.
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