The global financial market faces a new world where thousands of retail investors come online, meeting before opening a trading position. This situation has been happening in recent days for the first time in history.
Nowadays, retail investors are not trading independently; rather, they come together and work as an organization. One of the best platforms for such events is “Reddit,” where investors share their opinion and open trades simultaneously.
However, this method includes a high amount of profitability with a risk possibility. Another reason for coming together is to fight against professional investors. During the 2018 financial market crash, many investors got out of the market where institutions were winners.
Although the short squeeze is highly profitable, investors with proper knowledge can make money often impossible to make in the general trading system. The following section will see the complete guide on short-squeeze in the silver market with a good trading guide.
What is the short-squeeze?
Since 2013, the silver price remained subdued than gold. Where the gold remained stable, silver showed several upsides and downside pressure, and it attracted investors regarding the reason behind such movement. Many investors claimed that the commercial COMEX traders were behind this by holding a large amount of short position, exceeding the actual metal.
The short squeeze is a market situation when the price of a stock moves higher with a solid bullish pressure but reverses immediately by eliminating all gains with a crash.
The short squeeze behind with an immediate surge in the price. It provides a sign that a massive number of short-sellers coincidently decide to cut losses and get out of the trade. As a result, the heavily shorted stock moves higher and short sellers borrow shares that they believe have a higher possibility of moving up.
In this way, once the price moves up, they return the share where the difference between the price is their profit. This method is effective if short-sellers are right about the price direction. They might have to buy the share at a higher price and pay for the loss in any wrong decision.
How to identify the silver short squeeze?
It is a process where retail investors come together and make money from the false upside movement that will be recovered immediately. If you want to participate in the short squeeze, you need to connect with people related to the short squeeze.
Contact your trading partners, colleagues, friends to join the group and accumulate investments. Anyways, as an individual trader, the short-squeeze is different. If you are not directly involved in a short squeeze, you can make money by just looking at the chart.
Silver has a strong position as a safe haven asset besides gold.
Therefore, in an uncertain market condition, silver should react immediately. Moreover, it has a strong value in the industrial sector. If you can connect the supply and demand of silver using several fundamental indicators.
On the other hand, silver positively correlates with gold, another price director for this instrument.
In any case, if the silver price shows unexpected movement without any logic, you might consider it as a short squeeze and open trades immediately.
A short-term strategy
The short-term method is applicable in silver CFDs trading, mainly intraday trading. The price should react immediately by moving up or down and rebounding. Therefore, if the movement is not supported with fundamental direction, we can ope trades on the reversal.
Bullish trade setup
While taking a buy trade, make sure to follow these conditions:
- The market context is bullish.
- Important news or economic event happened that is bullish for silver.
- Instead of moving up, silver moved down with a strong spike.
- The price was rejected with a small candle and rebounded higher.
- Open the trade from the lower part of the spike to remain at the top.
Bearish trade setup
While taking a sell trade, make sure to follow these conditions:
- The market context is bearish.
- Important news or economic event happened that is bearish for silver.
- Instead of moving down, silver moved up with a strong spike.
- The price was rejected with a small candle and rebounded lower.
- Open the trade from the higher part of the spike to remain at the top.
A long-term strategy
The long-term method is similar to the short-term way that needs additional attention to the market context, involving higher risk and reward.
Bullish trade setup
While taking a buy trade, make sure to follow these conditions:
- The market context is bullish.
- Important news or economic event happened that is bullish for silver.
- Instead of moving up, silver moved down with a strong spike in the lower time frame.
- The price was rejected with a small candle and rebounded higher.
- Open the trade from the lower part of the spike to remain at the top.
Bearish trade setup
While taking a sell trade, make sure to follow these conditions:
- The market context is bearish.
- Important news or economic event happened that is bearish for silver.
- Instead of moving down, silver moved up with a strong spike in the higher timeframe.
- The price was rejected with a small candle and rebounded lower.
- Open the trade from the higher part of the spike to remain at the top.
Pros & cons
| Pros | Cons |
| A profitable trading strategy, if you understand why and how the short squeeze happens. | Risky strategy as it involves losing money if the market direction is not favorable. |
| The silver short squeeze has a higher profit ratio than a traditional trading method. | This method needs additional attention to trade management. |
| It does not need complex technical analysis knowledge. | It is hard to find short-squeeze opportunities in silver. |
Final thoughts
Finally, we have seen how the short-squeeze works in the silver market. This method is profitable only when social media shows signs of a short squeeze. However, many analysts still don’t believe that the short-squeeze is possible in the silver market due to its supply. Therefore, it is wise not to believe all movements as short-squeeze.
