Short squeezes are very common in the stock market. This usually entails low sentiment around a company, a perceived high stock price, and a large number of short positions. If, say, some unexpected positive news comes out, all those short positions are forced to buy, leading to an increase in the price of the stock. Even so, a short squeeze is more of a technical pattern rather than a fundamental event.

Short squeezes are also quite common in the cryptocurrency markets, most notably in the Bitcoin markets. The Bitcoin derivatives market uses high-leverage positions, and these can be trapped or liquidated with relatively small price moves. As such, short and long squeezes happen frequently in the Bitcoin markets. If you’d like to avoid getting liquidated or trapped in such moves, carefully consider the amount of leverage you’re using. You should also adopt a proper risk management strategy.

Take a look at this Bitcoin price range below from early 2019. The price was contained in a range after a sharp move to the downside. Market sentiment was likely quite low, as many investors would be looking for short positions, expecting the continuation of the downtrend.

However, price flew through the range with such haste that the area didn’t even get retested for a long time. It only got a retest years later, during the coronavirus pandemic (also known as “Black Thursday”). This rapid move was quite likely due to extensive short covering.