Cryptocurrency is not a novel thing for the 21st-century society. People consider crypto as one of the most profitable investments in contemporary society. The cryptocurrency landscape is an extremely volatile one, the price variation and fluctuation of crypto coins are beyond predictable. Short squeeze and long squeeze are two important concepts in the cryptocurrency arena. These are market conditions that lead to sudden price spikes and drops in a crypto asset.
Short squeeze and long squeeze are two market dynamic trends that cannot be avoided from the crypto ecosystem. In this article, we will be comprehensively discussing the concepts of short squeeze and long and how it affects crypto market and individual tradings.
What is a short squeeze in crypto?
A short squeeze is a market dynamic trend when the price of a cryptocurrency shoots. A short squeeze occurs when the price of a crypto asset increases. This will force the short sellers to limit their losses. It generally happens when multiple investors bet against a certain crypto asset and its price spikes.
Short sellers of crypto will initiate their trades expecting the price of that particular asset will drop or fall, but the excessive short selling will lead to a rapid price increase. This will force the traders who previously sold their short assets to close out their positions. This strong pressure of purchase will squeeze the short sellers and force them to stay out of the market.
Short selling is a common trading strategy in finance, the short sellers find themselves in a risky position once the shorted crypto assets unexpectedly spikes. The potential loss for the short sellers will increase when the price continues to rise and follow the same trend. The short sellers might decide to buy back their shares at a higher price. This can help them to minimize their loss.
A short squeeze can bring significant gains, but a lot of risky factors are there. The short seller might face loss if he is unable to cover their position before the price rises to a higher value.
What is a long Squeeze?
A long squeeze happens when the price of a particular cryptocurrency drops sharply. This dynamic trend will force the traders who have long positions, to get rid of their holdings to minimize the financial loss.
The long squeeze can be a common part of the cryptocurrency sector because of its high volatility. The long squeeze will force the traders with long positions to sell their assets to minimize the loss, this can create additional selling pressure in the crypto market, and the price decline trend continues.
A long squeeze happens when traders feel confident in a certain project’s growth and open long positions. The traders feel vulnerable when the price of that particular project drops. Then they start to swell their assets to avoid further price drops. Traders with long positions (bets on the growth of that project) will have to close them to avoid further price losses.
What is the difference between long squeezes and short squeezes?
Long squeezes and short squeezes are both market phenomena that involve abrupt price fluctuation of a particular crypto asset. The price fluctuation involved in long squeezes and short squeezes are downward and upward respectively.
The selling pressure in long squeezes will lead to a progressive decline in the asset’s value. The increased buying action in the short squeeze will shoot up the price of crypto. Let us take a look at the other differences between short squeezes and long squeezes.
Traders who have bought short contracts need to fulfill the legal obligation to settle with the assured shares but in a long squeeze, traders do not have any kind of obligations to fulfil. The frequency of both long and short squeezes is a notable factor. Short squeezes are a more common phenomenon than long squeezes in the market.
Both long and short squeezes negatively impact the traders, but the impact long squeezes can make on the investors will be more damaging. The long squeezes will negatively impact the investors and traders most. Along with the negative impact, the traders involved in long squeezes seem more vulnerable than the traders involved in short squeezes. These are the major differences between short squeeze and long squeeze.
How to Handle These Kinds of Market Dynamics?
We can’t determine and predict the fate of the market, it will change according to the factors inside and outside of the market. Traders can adopt various methods to effectively manage these market dynamics.
Staying informed about the potential market fluctuation is the best thing to do. You need to actively participate in the crypto market if you want to attain a good amount of profit. You cannot effectively participate in the market if you are not well-informed of the market trends and shifts.
Understand the market risks and learn about how to control them. It can give you the upper hand when it comes to facing abrupt market dynamics. Analyzing the charts will be a huge helping factor when you approach market dynamics.
A clear understanding of how much money they would be comfortable losing in any kind of trade will be ideal. These are the basic things that an investor should be aware of when he enters into the market.
The Bottom Line
Short squeeze and long squeeze are two major market phenomena. A short squeeze happens when the price of a crypto asset increases. This short squeeze forces the traders to close their positions to decrease the financial loss. A long squeeze happens when the price of an asset decreases.
This will force the traders with long positions (who believe in the growth of the asset) to close their positions to prevent the possible financial losses that might happen when the price drops continue at the same level or an increased level.
