A LONG SQUEEZE occurs when a sudden drop in price of a single asset incites further selling. Investors protecting themselves against a rapid fall close long positions or sell shares.

A characteristic feature is a new, deep low which results from many traders exiting their positions. This sharp drop without a fundamental basis may be caused by an event, news or media rumour. After discounting this news, the lower price will be treated buy experienced traders as a but signal since fundamentally nothing has changed.

There are several ways to avoid this situation:

Avoid illiquid markets, where a long squeeze can be very deep. Although recognizing a long squeeze quickly can mean you can sell and buy back at a lower level.

Use a broader Stop Loss orders on liquid markets. This could mean a bigger loss but means that if you are fundamentally right you will be protected

• Fast reopen the position after orientation that the market return to uptrend.

EDU_long_squeeze

On this chart, there is an example of a long squeeze on the DAX futures contract. The index moved in an upward trend for several days until there was a dynamic drop that exceeded the lows of the past 5 days. This chart is the M30, and the trap for the bulls lasted only from 1:30 PM until 4:30 PM (6 candles). After breaking a few support levels, index quickly returned to the upward trend and reached a new high.

EDU_long_squeeze-DE30

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Author of worldtrader.pl blog and big supporter of technical analysis. Active medium-term trader. In his analysis uses classical charts, price action as well as harmonic patterns and Elliott Waves. In trading he always tries to take into account two points of market's view, in accordance with the principle that each transaction may be attractive both for the demand and supply traders.