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What is a Long Squeeze?

A long squeeze is a phenomenon that happens when stockholders with long positions start selling their shares in large quantities, pushing the price of the stock even lower. Selling can become self-reinforcing in this situation since lower prices encourage consumers to buy more, which drives down prices even further.

When an investor purchases securities in the hope that their price will rise in the future, they are said to be holding a long position. A short position, on the other hand, is when an investor sells securities in the hope that their value will decline in the future. In a long squeeze, stockholders who have long positions start selling their shares out of concern that the price will continue to fall, causing other investors to sell as well.

Long squeezes can occur in any market, but they are more likely to occur in illiquid stocks or in markets where there is a lot of volatility. In an illiquid stock, there may be a limited number of buyers, which can make it difficult for investors to sell their shares at a desired price. This can create a sense of panic among investors, leading to a long squeeze. In markets with high volatility, investors may be more likely to sell their shares in response to a sudden drop in prices, leading to a long squeeze.

One way to identify a long squeeze is to look at the short interest in a stock. Short interest is the number of shares that have been sold short by investors who expect the price to fall. If the short interest in a stock is high and the stock price starts to rise, short sellers may start buying shares to cover their positions, which can create buying pressure and drive prices even higher. Conversely, if the short interest in a stock is low and the stock price starts to fall, investors who hold long positions may start selling their shares, which can create a long squeeze and drive prices even lower.

Long squeezes are rare in high-volume, larger-cap names because opportunistic investors will tend to enter names when prices are falling, as a form of bargain hunting. These investors may buy shares at a lower price, which can create buying pressure and help stabilize the market.

A long squeeze is a phenomenon that occurs when investors who hold long positions in a stock start selling their shares en masse, causing the stock price to fall even further. Long squeezes can occur in any market, but they are more likely to occur in illiquid stocks or in markets where there is a lot of volatility. Investors can identify a long squeeze by looking at the short interest in a stock, and they can potentially profit from a long squeeze by buying shares at a lower price. However, investors should be cautious when trading in markets where long squeezes are common, as they can create significant losses if prices continue to fall.

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What is a Short Squeeze?
What is a Bear Squeeze?

Disclaimers and Limitations

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