Short squeeze: when short sellers drive up the price themselves

Imagine: a crowd of traders argued that the price would dip and opened shorts. But suddenly the price went up — and their whole strategy fell apart. Now they urgently need to close their positions by buying the asset back. The more they close, the higher the price soars. It creates a paradox: those who bet on the dip are pushing the market up themselves. This is called a short squeeze.

How it works in practice:

Step 1: Traders are massively opening shorts, confident in the dip.

Step 2: Suddenly something changes - news, large buyers, or just manipulation. The price starts to rise.

Step 3: Short sellers are at a loss. They don't like the broker — positions start to be forcibly closed. The asset is being bought at rising prices.

Step 4: Demand soars, supply is scarce. The price is going up parabolically. This can no longer be stopped.

Classic of the genre:

GameStop (GME) soared from $20 to $483 in 2021 in just a few days. Bitcoin and altcoins often have such scenarios — especially when there is high volatility in crypto futures and shorts are overbought.

How to notice this in advance:

— Look at the percentage of open shorts. The higher it is, the greater the potential for a squeeze.

— Keep an eye on the liquidation waves in futures. A sharp spike is the first warning bell.

— Volumes don't lie. If there are suddenly insane volumes during the rise, this could be the beginning.

Advice: This is not speculation on a squeeze, but understanding market dynamics. A squeeze is a powerful force, but it is unpredictable and dangerous. Remember about risk management.