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Coach's Playbook Posted by Team Topstep February 3, 2021

The Short Squeeze

Anyone who’s ever traded has probably learned an expensive lesson at one time or another. For anyone still holding out for GameStop to go to the moon, this might be your trial by fire. People always get burned when the short squeeze starts because they don’t have an exit strategy. 

This week, the Topstep coaches are here to breakdown what really happens when a short squeeze play is being made. They all have their own personal experiences with this topic, so sit back try to learn something.

Funded Trader Shoutout

Everywhere you go people are talking about GameStop, Reddit, and Robinhood; they’re definitely the big news stories of the month. Well, there’s another story out there too. A story about a particular Topstep trader who has reminded us how important it is to take some profits when you’re up in a trade.

Funded Trader Marcel J. isn’t getting caught up in the short squeeze that’s been dominating the news. Instead, he took his trading knowledge and squeezed about $6,600 out of the Nasdaq futures early on in the first week of February. 

Early Birds Make The Money

The guys who get in early and bet big are going to walk away with life-changing money. It’s the investors who get in too late and don’t realize it, that create the rip that leads to the short squeeze. Those are the people most at risk of losing out because they don’t cash in at the right time.

A short squeeze can happen in any market, but they’re exponentially more common in stocks for the simple reason that there’s a finite amount of stock available for any particular company that is publicly traded. It’s easier to manipulate an individual stock than a futures market, where the number of contracts created in any product is literally infinite. You need deep pockets to hold a futures market down, and the risk is far greater.

If you’re so inclined to follow the herd and get in a short squeeze based on information that you heard in a forum or on the street, make sure you have an exit strategy in place. The move back down usually comes unannounced, and it’s typically an unforgiving break. Know where you’re getting out before you get in. There’s nothing wrong with taking profits!

Trade Well!