Short squeeze in futures market

шорт сквиз

Editor’s comment: perhaps not everything will be clear the first time, but we will try to explain the principle of the strategy. However, if you are a professional (and futures markets on the more complicated procedure of Forex trading and especially binary options), everything should be clear for you.

As you know (those who often trades futures on CME or ICE), the best time to trade breakouts in the emini contract after this morning’s gap up (marked in the figure below. Trade is conducted in the English terminal, because of the notation also in English). The strategy plays well on quick intraday trades in the first two hours of the morning session.

E-Mini – futures contracts, which are valued, but are only 1/10 of a standard exchange contract. These contracts first appeared on CME, and today they can be found on many exchanges. Offered only in relation to liquid assets is known, for example, the NASDAQ 100 or the S&P 500. Also on those contracts, we were talking here in this article.

In my tactics I propose to use an overbought market, which occurs in these very first hours of the morning trading session, when there is a short squeeze.

Squeeze is an interesting market situation in which buyers or sellers become hostages of their own actions. For example, an investor buys a futures contract on the underlying asset. There is a demand – growth rates, the more investors buy an asset, the faster price increases. And here on the market come the bears, because they have relied on selling (lower prices) and rising prices – it’s their loss. Considering that the cost is too high, the bears sell the asset in debt (to buy it when the price goes down). In other words, they take the asset to sell it now and buy at a lower price through the time to repay the debt. However, it is not enough to reverse the market down. And now the bears are forced to close the position at market price, further driving the trend. This situation is called a squeeze.

Short squeeze is a phenomenon, when on the market there is rapid rise in the price of the asset due to the reduction of the volume of pending orders for sale. In other words, a short squeeze is even more rapid rise in prices due to the fact that the bears close positions at the current market price, to avoid greater losses.

Look at the 5 minute charts (intraday strategy) EC emini (S&P 500):

morning futures trading

Our actions:

  • in the morning wait for the situation when the market opens with a gap due to the overbought;
  • in the first 20 minutes we see price trying to pass the opening. The best point of entry for the first 20 minutes. As soon as we see a few wide five-minute bars closing up, try to enter the market;
  • exit the market on the breakout of the 30-minute minimum. That is, as only you notice that the price stopped growing up and shows light falloff, close the position.

Setting the take profit depends on scalping if you have a deal or long-term (up to 2 hours).

This strategy was born when I noticed that the morning session often begins with some rally. Following the trend, I came to the following conclusion: if the morning session opens with a gap up, this creates discomfort for those who opened short positions. Scalpers who see the upward trend and scatter market add fuel to the fire. And at this point comes the short squeeze. It is logical that the market immediately finds resistance because scalpers go out of the market, trend is included in the overbought zone. This point needs to be seen, because the strategy is only recommended for EC emini futures subject to speculative fluctuations.

By the way, I would not recommend to enter the market 30 minutes after strong growth, , but I recommend to enter it in the first 5 minutes, if there is a growth.

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