dani face dani quote

For the love of a short squeeze

One of my favorite strategies is riding the short squeeze.

I use it all the time — it’s one of my go to strategies, and I couldn’t imagine trading without it. However, this wasn’t always the case, but I found lately that a lot of traders have asked me to really “flush out” all that there is to a short squeeze.

That’s why, for this next series, I’ll explain to you what it is, how I discovered it, who it’s good for, and when to apply it. 

Let’s dive in…

As a self-made trader I’d always considered myself to be fairly conservative when it came to buying and selling options. Of course I wanted to grow my account, but I wasn’t willing to “bet the farm” on anything too risky. In fact, I was quite content with my slow-and-steady approach to making money, so I avoided what I considered to be risky strategies — trading the short squeeze was one of them. 

What’s A Short Squeeze?

We’ll get more into it than just this… but it’s essentially buying a stock that’s exploding through the highs, in a strong, momentum move.

Check out the move in Peloton (PTON) below.

In a ‘normal’ directional setup, I’d target a 1.272% extension. However, with a short squeeze, experiencing a 2.618% move is ‘normal’ — making it an explosive move. 

This is what a short squeeze looks like — it makes a new high, then explodes, through that high. 

However, as I grew as a trader, I learned to go beyond my comfort zone and take on more calculated risks. What I found through my analysis was that it’s exactly this type of strategy that can make all the difference in the world, especially when added to the conservative strategies I was doing on a regular basis.

But the glory of trading… it’s never too late to start making your money work harder for you!

So What Changed?

After awhile, I started trading some more aggressive moves, notably the short squeeze.

It was going really well, but it wasn’t a part of my regular day to day. I realized just how impactful it was when I was doing my end of year review, and I realized that majority of my profits came from this setup. It might seem strange to know the exact day I realized how powerful this was, and why I should devote more of a focus to it. But, the proof is in the pudding, and I saw this at my end of year review.

Don’t miss out on Danielle Shay’s course of the month where she explains how to use this full strategy in her Short interest secrets class. Click the image to learn more.

Like a lot of other traders, I do this every single year. Sometimes certain years are better than others, but the most important part is that you do it consistently. 

To help, here are a few key components I look for:

  • Best and worse performance by ticker
  • One-off wins and losses (they add up!)
  • Best and worse trading patterns

To my surprise, when I looked at my top ten traded tickers, six out of those ten had something in common. It was a brand new pattern I didn’t even notice throughout the year — and it was better than my usual strategy at the time

2019 Screenshot of my Top 20 Most Profitable Tickers

That’s when I realized just how significant trading tickers with high short interest was (a.k.a. the power of the short squeeze).

Now this year, the tickers are different… but the pattern remains the same. 

After Pulling That Data From My Trading…

It was right then and there, I realized everything I thought about aggressive and risky moves was a lie. I found that I could still stick to my core strategies, but by layering them over the short squeeze pattern, I could improve upon my gains whilst still mitigating my risk… and the rest is history. 

Fun Fact: It’s also how I’ve made 500% on my account in 2020, twice. 

5x account gains trading tickers like Chewy (CHWY), Peloton (PTON), Zoetis (ZTS), and more. 

Some of the best moves this year were in Peloton (PTON), Chewy (CHWY), and Tesla (TSLA). What was your favorite short squeeze this year?

Tune in next Thursday, as I’m going to tell you more about my favorite aggressive setup, during this month’s Short Squeeze Series. Stay tuned for more!

Up Next...

Growth Stocks On The Move, How To Capitalize

Hey traders!  This week, I wanted to highlight analysis from my friend and well-respected colleague, Mary Ellen McGonagle! She primarily focuses on stocks with a 2-week to 9-month horizon depending on market conditions. She has some great tips on how to capitalize on the current uptrend taking place! Check out her guest newsletter below to … Read more

Read More

How to Day Trade the SPX Using Butterflies

For today’s Five Star episode, I wanted to highlight what my colleague and fantastic trader, Allison Ostrander has been up to. She has been crushing it in our Simpler Options trading room, and her own Mastery service, using day trading butterflies on the SPX. I’ve loved watching what she’s doing, especially because, as you know, … Read more

Read More

AMD: Earnings in Focus

FAANG Earnings is Through: Is the FAANGover Next? We made it through FAANG Earnings Week, and saw volatile, market moving reports from the likes of Amazon (AMZN), Apple (AAPL), and Microsoft (MSFT). However, these moves, while significant, need to demonstrate follow-through for more continuation to the upside. Whether or not we will actually get that, … Read more

Read More

Subscribe Today!

Want to walk the path to trading success together? Join Danielle’s “Five Star Trader” E-Letter for market insights, tips, tricks, and special bonuses.

Sign Up Now
all-as-seen-on-logos