In the first candle after the open it traded high volume and spiked to $4.22. And when it started to downtrend from there, that was likely where short sellers put their risk level.
As the stock went below VWAP, it looked like the shorts were in control. And shorts were likely adding to, and taking new positions just below VWAP.
But when it pulled back from VWAP, it formed a double bottom.
Buyers were holding it up and some short sellers probably started to buy to reduce their size.
From there the stock shot up on increasing volume. More shorts tried to keep it down by selling into the break above the daily high. But on the next dip, it held VWAP again. That's when buying really got crazy and we saw big green candles to the upside.
Stocks in hot sectors with news, a low float, and high volume offer some of the best potential short squeezes.
When to Trade Short Squeezes And How To Potentially Profit From Them
Review my SECO trade plan.
You can see my entry price was at a whole dollar level. And it was at a point on the chart where anyone who shorted the stock in premarket or at the open would likely be in the red.
That's a short seller panic point. That's where I want to enter and join any potential move to the upside.
But these plays aren't long-term holds. You can see SECO made its entire move within 15 minutes.
Remember, these stocks have these moves because short sellers are buying to cover to exit their positions. Not because of the news or because they're good companies.
And as short squeezes go higher, they'll start to take new positions risking a new high. And long traders will start to take profits. So these moves can reverse quickly.
Stay disciplined and trade the one specific move you're looking for, then move on.
If you want my daily trade idea and plan delivered to your inbox in premarket — sign up here.
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Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade
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