1. Does anyone has ever made any money shorting a short squeeze? 2. Is going long the only way to make money during a short squeeze? When I see a short squeeze and I'm not in long I always think to wait until the market gets to a strong resistance level and then get short. I see that the market is going higher on very light volume and I think that it will soon reverse direction. Wrong! Today and last Friday afternoons ES kept going higher! Have a nice week-end, daydreaming
IMO the definition of the term "short squeeze" is something different. it is, when there is not enough underlying available for the shorts to cover, like e.g. was in the BUND future some time in 2000, leading to really dramatic price movements.
Nobody seems interested in short squeezes. I'd like to share opinions, strategies and experiences with other traders about the subject.
There's not much to discuss. Shorting a short squeeze is trading counter-trend. If you want to benefit from a short squeeze, you have to be long. Why not just make the money the easy way?
I typically like to trade countertrend. However in the middle of a short squeeze, you get killed (hence, the squeeze). The hard part is identifying when its happening. Looking at all days on the QQQ when we've gone up 4% intraday I find 124 occurrences since 3/10/99. Going long AT THE 4% point and selling at the close results in 63% succesful trades with an average result per trade (including wins and losses) of 0.77%.
Today was nice because you had a break below yesterdays low only to see price promptly jump back up. If you look at the ES 60 min chart, the pattern was a classic Dinapoli "rail road tracks" trade (Price rejection). everyone who shorted below the break of yesterdays low quickly found themself in a losing position, hence the short squeeze.
Very simple. If you are sitting there, thinking this is nuts, its going to turn down big time any second , just fade that opinion and bank.
The thing about a short squeeze is that the reason behind the issue moving up is not because of the shorts scrambling to cover. The shorts scrambling to cover is the fuel that makes it rise faster and bigger, but they have to cover because some event made the issue gain long. So, at the close or whatever other point you've backtested that seems optimal, I'd say that forward going, if the underlying reason is still valid at that point of yours, the issue is still valid as a long. And if the issue is still valid as a long, it could still gain. And if there are still shorts caught yet at that point, it could gain bigger and faster even from that point.
Why would you want to go short on Friday afternoon, end of your trading week, DOW and S&P screaming upward. A wrong call would ruin your day and week. I waited to see if a sell signal occured on Friday afternoon. It is almost there, needed a couple red candles, never occurred. No need to guess here, just didn't happen.