A short squeeze is forced buying from short sellers who are already in the marketplace. A short seller is someone who is trying to profit from a stock going down. When buying a stock, the worst thing that can ever happen is that you lose 100%… but in short selling, you have unlimited risk. Stock can go up hundreds or thousands of percentage points – especially if the stock is getting squeezed by forced buying from short sellers. The GameStop Squeeze Short squeezes became in fashion earlier this year in January, with the WallStreetBets Community focusing first on GameStop. GameStop had a short float, a short interest of 140% of the outstanding shares. Due to naked short selling, hedge funds were shorting the stock on the stock without even borrowing it. When the WallStreetBets community recognized that, they all started buying. Their buying caused the stock to go up, resulting in some of the shorts starting to get squeezed. When that happens, you get a virtuous cycle of buying. That’s how we were able to see GameStop go from the price of about $20 to $500 in a matter of days. Other Notable Short Squeezes We also saw short squeezes come into a lot of other stocks – $AMC $SNDL $BBBY $BB. There’s been a constant rotation of these mini short squeezes we’ve been seeing. GameStop itself has had three major squeezes, AMC had two major squeezes. My team and I now are paying attention to stocks that have high short floats. Anything with a short float above 20% is in squeeze territory. Some of those layers of probability also apply. If we’re seeing the heavy volume along with momentum coming in, that could be the beginning of a squeeze. Risks in Short Squeezes Being too late A lot of these companies are not necessarily the best companies out there, fundamentally speaking, and it’s probably why they had really large short interests. Once the forced buying is done, there’s a real risk that the stock can go right back down to its more fair, fundamental value. We want to make sure to get in on the ground floor of that squeeze – getting involved early – before it’s gone up a couple hundred percentage points, and when the technical setup was still there. If not, you risk buying in too late at too high a price and losing the very next day. Secondaries (Capital Raises) An IPO, initial public offering, is when a company’s shares first become available to the public. They can always add on more shares to that IPO by doing a secondary. A secondary offering is when a company decides to utilize their stock price to raise additional funds for the company’s operation by offering out additional stock. Now, let’s think about what secondary offerings mean from the perspective of supply and demand. Demand is coming into the stock, and some of that demand might be from the short squeeze. You also have a limited number of stock supply, which is what we call the stock’s float. Now, when you do a secondary offering, the overall stock float will increase. If you’ve got the same amount of demand, and all of a sudden, you’ve got much larger supply because the float is increased, that stock will most likely go down. AMC’s Secondary Offering That is exactly what happened to AMC. Many people don’t realize that a secondary offering actually caused the top of AMC. AMC had that crazy short squeeze on June 2. It was actually the second short squeeze in the name. In one day, it went from about $35 to $70+. Then they announced a secondary offering the next morning, and the stock went all the way back down to $38. Something to keep in mind regarding a lot of these companies…why were they so heavily shorted to begin with? They’re usually strapped for cash, don’t have strong balance sheets, and possibly even lose money year over year.
Continue Reading -->Finding the risk/reward probability of a trade is simple math. But most people don’t talk about the other side of the formula: probability of success. Probability is very dynamic and not as straightforward as risk/reward. In this video, Derrick will walk you through what he calls the seven “layers of probability” – all of the factors that will increase the probability of a successful trade. Get all of these layers in order and you can improve your chances of success.
Continue Reading -->If you’re just getting started in the trading business, it can all feel overwhelming. There’s a lot to learn, and much of it comes with time and experience. But Derrick Oldensmith has a few tips that he’s discovered over his more than 10 years of trading. Check out the video below to learn the 5 things you should know before you start trading and use Derrick’s experience to your advantage.
Continue Reading -->In this special training session, professional prop trader Derrick Oldensmith shares: Where the market could go from here Why the market is ignoring bad news What is keeping stocks so strong How he identifies a powerful market trend
Continue Reading -->This market update is brought to you by our new Pro Trader Boot Camp. In this video, pro trader Derrick Oldensmith shares how he’s been navigating the market chaos: Derrick explains: How he turned a losing short trade into a winner How he uses trade and money management in challenging market conditions The basics of becoming a prop trader After you’re done watching the video, check out the new Pro Trader Boot Camp.
Continue Reading -->This market update is brought to you by our new Pro Trader Boot Camp. In this video, pro trader Derrick Oldensmith shares how he’s been navigating the market chaos: Derrick explains: Why he prefers a volatile or directional market How he spots short covering rallies How he uses “fund positioning” to spot big market and stock moves The benefits of prop trading Why traders should consider joining T3 Trading Group as prop traders
Continue Reading -->Professional trader Derrick Oldensmith takes you through trader psychology, and offers tips for managing the volatile emotions of real world trading. The cycle of trader emotions applies to the entire market and traders. Did you come up with an idea when the market opened? Did you execute that trade? How do you feel after executing the trade? It is okay to feel a little nervous, but you should mostly feel optimistic and hopeful that the trade will work out and you’ll start seeing your P&L go up. It is only natural to start feeling a little bit excited. You might be saying, “I can’t believe I bought this stock for 20 cents risk at the open and now I’m up multiple dollars.” Then you get another leg up and start thinking, “I am the greatest trader in the world. I should have bought more. I can’t believe that I only bought 400 shares, I should have bought 4000. I’ll just add now because everything I touch is gold.” However, the market starts to decline a little bit and your P&L is not as high as anymore, then you start to feel a little anxious about it. This is where denial comes in and begins to almost take over. You know that you are supposed to implement those trading rules from class, but it’s a really good company, and it is only a temporary setback. Right? This denial is when risk management really goes out the window and the stock goes down further. When you don’t have risk management in place, it causes fear. By this point you gave everything back, and you are panicked because you no longer have a plan. You continue to hold, praying the market goes back up, but it keeps going down, making you desperate. You begin to think about the worst-case scenario. Personal emotions will dominate here and you might feel as if the market is rigged or set against you. If you ever find yourself in this situation, letting your emotions or ego get in the way of your plan, remind yourself why consistency is key and why you must follow your plan and the market, not your emotions. Rules must be put in place to combat emotions; emotions often steer us in the wrong direction. What is the solution to all this? Well it’s actually pretty simple, write your plan down and create a list of what to do based on how the stock might perform. That way you’re prepared and won’t let fear and emotions take over when you need to act. The perfect trader would be able to look at a trade, recognize the flaws and make adjustments next time. With any trade there should be at least one or two reasons why it should succeed as well as at least one for why it might fail. It’s very easy for a trader to become fixated on that single reason why it might fail. Remind yourself that you already made the trade. You already took on the risk, you could have already taken the entire potential loss, so stick to the plan and watch the trade play out. Remind yourself how many layers of probability there are on your side and never trade to try and catch up — that’s where the plan begins to fall apart.
Continue Reading -->Learn to maximize rewards and manage risk on your trades in this trading webinar hosted by Derrick Oldensmith, Senior Trader with T3 Trading Group LLC. Tips for managing risk and maximizing reward How and why he books profits on different types of trades How he balances risk and reward with a simple formula Simple indicators that give insights on the market trend Why risk management and money management are vital to making money trading
Continue Reading -->In this video, professional prop trader Derrick Oldensmith shares his keys to success in trading. You’ll learn about: -The simple math behind risk-reward in trading -The ‘layers of probability’ Derrick uses to improve his odds of success on individual trades -How he grades trades from A+ to F (best to worst) -His rules for generating consistent profitability -What you need to know about prop trading careers -Important details about T3 Trading Group
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