A short squeeze is an unusual market condition that causes the price of a coin to rise quickly, encouraging traders (who are betting against the price of the token) to buy it to avoid losses.
When numerous short sellers close their short positions in a short span, which means they keep buying the coin, a spike in price is observed. It triggers the short squeeze conditions. If all shorters initiate buying, demand outweighs supply, which causes the crypto coin’s prices to rise. A significant rise in trading volumes that lasts only a short time often follows a short squeeze.
An important factor to look at is the short interest at any given time. The main reason people short the market is to benefit from the high-interest rate paid out if their predictions are correct. Consequently, there is always an opportunity for short squeeze conditions, especially in the volatile crypto markets.
The flip side of the short squeeze is the long squeeze. This happens when there is increased pressure to sell a crypto asset because of the market conditions. This often results in a quick price collapse since more supply exceeds demand. However, long squeezes are less common. Despite this, it is important to be aware of their existence when trading in the crypto markets.
However, one must exercise caution. Heavily shorted crypto markets are that way for a good reason. Valid reasons lead numerous investors to bet on the crypto price going down. One should be wary of taking any position on heavily shorted tokens. Before making any trade, study the crypto market and why traders are betting against it.
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