- 1). Identify stocks with a high percentage of short interest. There is no magic number for this. However, the higher the percentage of the stock being held short, the better your chances of executing the trade successfully. To find stocks with a high short interest, use the stock screener from Schaeffer's or look at the short interest in publications such as the Wall Street Journal or Barron's.
- 2). Determine from the average daily volumes traded how much capital it would take to keep buying the shares until the price moves up to the point that the short sellers start getting nervous. Thinly traded stocks with a high percentage of short interest are the ones to target.
- 3). Start buying shares according to your plan (based on the amount of money you can commit) if you think a short squeeze is worth a shot. Keep going until the price moves up and buying starts to come in or you reach the upper limit of how much your trading plan allows you to spend. Be ready to quit buying and sell the shares you've bought if the plan backfires and the stock fails to move or even falls.
- 4
Stock prices that move up as a result of a stock squeeze have been known to fall faster than they rise.stock market analysis screenshot image by .shock from Fotolia.com
Sell for a quick profit if the short squeeze has taken on a life of its own. Let the shares rise until you notice that the buying volume starts to slow. Then begin selling. It's important that you close your position while the buying volume is strong so that you can sell all your shares at a profit. Stock prices that are on the aggressive end of a stock squeeze have been known to fall faster than they rise. Don't get greedy.
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