What is a Market Squeeze?

Understanding Market Squeezes

A squeeze occurs when compressed volatility suddenly erupts into a sharp, explosive price move—often forced by trapped traders scrambling to exit losing positions. Short squeezes happen when price surges as short sellers cover, while long squeezes see price plummet as long holders panic-sell. Both create violent, self-reinforcing price action as forced liquidations feed the move.

Anatomy of a Squeeze

Squeezes require two ingredients: compressed volatility creating trapped positions, and a catalyst triggering forced exits. During consolidation, traders accumulate positions betting on breakout direction. When price breaks opposite to the larger position cluster, those traders face losses and hit stops or receive margin calls, creating cascading liquidations that accelerate the move exponentially.

Identifying Squeeze Setups

Look for narrowing Bollinger Bands, declining standard deviation, tight price ranges after extended trends, and tools like the TTM Squeeze indicator showing volatility compression. High open interest or positioning data showing lopsided bets adds fuel. When volatility suddenly expands, price often rockets violently in the squeeze direction.

Trading Squeezes

Enter early during compression before the squeeze initiates, or wait for the initial thrust then enter on the first pullback. Squeezes can reverse abruptly once forced participants finish exiting—the move exhausts when trapped traders are squeezed out. Take partial profits quickly, trail stops aggressively, and don't be greedy expecting squeezes to continue indefinitely.