How To Trade an End of Day Short Squeeze

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Video Transcription:

Hello traders, welcome to the stock trading course and eighth module, “Penny stock trading.” In this lesson we are going to learn how to trade an end-of-day short squeeze and of course we don’t want to be short on a short squeeze because that would be pretty bad for our account. We actually want to be the ones squeezing short position out of their position, actually. So what we want to do here is we want to monitor the top gainers for the day and then look for levels. We’re going to the sink or swim platform and I’m going to show you this chart of IMMU. And this happened yesterday. As you can see the market already opened today but what I want to show you actually is this part of the chart.

endofdayshortsqueeze 1

So let’s go and take a look. Well the market opened and we went down then we went up from the low of the day around 241 to a high of 260, which means that the stock was up about eight percent. Then it came down with on buyers at this level and what we were expecting was another rejection to this level. Let me just put on a price level at these highs, okay? Oh, right here. All right so this is the level that traders were looking for another push to the downside, okay? Remember, we went up eight percent and then we rejected this level and we flushed from the 260 to the 247 for a $0.12-per-share flush. So what traders were hoping for is another test of this level of resistance for another $0.12 push to the downside.

Easy money, right? Well, no. Here is where it becomes difficult to short penny stocks. You can see the price came all the way up to this level and then we had a reversal pattern right here. Let me show you the reversal pattern right about here.

endofdayshortsqueeze 2

Okay, you can see that we have one candle that rejects the level of resistance then we have a inverted beam bar and an immediate red candle forming an evening star. This is a clear technical reversal pattern.

But what happened? Let me just zoom in again here on our chart. Price started to trade in a range, okay? This is where short positions have to get out of the market. And when are we going to buy this stock on a short squeeze? We’re going to buy it on a buy-in, a volume surge, and of course a break of all the previous highs. Now let me just put on another price level right here. So we have the previous high at the 263 level, okay?

endofdayshortsqueeze 3

We rejected the previous level of resistance. We made a reversal pattern. It didn’t follow through. We started to trade on the range. This is where short positions have to get out and stop wishful trading. And then we have a surge in buy-in volume and a break above. So right here we buy this stock, okay, because the short squeeze is about to start. And we buy it at the 266 level and it went to a high of 290. Of course it’s very difficult to get rid of the position at the extreme high of the move, but you could have gotten out at the 283 level, for example, for a nice $0.17 win-per-share on just a five-minute trade. And basically you can just keep following this method to look for end-of-day short squeezes for stocks that have moved up and have rejected these levels on a daily basis.

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