What is a Market Squeeze?
Quick Answer: A squeeze is a volatility expansion that forces trapped traders to exit, producing sharp moves like short squeezes or long squeezes.
Understanding Market Squeezes
A squeeze happens when compressed volatility erupts into a sharp move, often forced by trapped traders. Two popular types are short squeezes (price surges as shorts cover) and long squeezes (price drops as longs exit).
Spotting Squeezes
Look for narrowing Bollinger Bands, declining standard deviation, or tools like the TTM Squeeze indicator. When volatility expands, price often rockets in the breakout direction.
Fuel Identification
Heavy short interest combined with bullish catalysts sets the stage for a short squeeze. Monitor positioning and catalysts closely.
Risk Controls
Squeezes can reverse abruptly once forced participants exit. Take partial profits quickly and trail stops aggressively.
Do Not Chase Late
Joining a squeeze after the bulk of the move can leave you buying the top. Wait for pullbacks or evidence of continuation before adding risk.
Related Terms
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