It's quite simple that the two primary factors that drive stock price are fear and greed. When stocks enter this parabolic phase either up or down a lot of money can be made by keeping emotions in check. The key is recognizing the phase the stock is in and acting accordingly.
Stocks In Play
1. Increasing volume: this is the most obvious indicator but it needs to be stated that without increasing volume there is no liquidity and no chance of making fast money
2. Uptick in social media: you have to look at the message boards, twitter, and all social media and the message traffic needs to hitting on all outlets. (Investors Hub, Stock Twits, Twitter, Facebook)
3. Trending sector: a particular stock in a sector needs to have the sector backing. This means the entire sector needs to be in a slump or in a climb. This way you get the backing of the indexes that have to buy/sell the stock.
4. Market maker games: all stocks move according to algorithms and the key is finding the correct algorithm and pattern that market makers present when volume comes in or out of a stock. The key is noticing bullish and bearish patterns.
5. News story: story stocks are ideal for trading and prone to wild run ups and flushes.
6. Valuations: figuring out the proper valuation of a company is harder than most would imagine. Then put a collar on the upper band and the lower band and that is where stocks in play can trade.
CV Sciences Case Study
CV sciences had been on a tear and looked like it was at key resistance when on August 8, 2018 a really tame announcement of Dr. Maroon being appointed to the board of directors threw the stock into a parabolic panic as the shorts just reached their breaking point. This was a classic case of short covering and traders immediately hopped on board. The stock grinded higher for the next 8 days with gap opens every day. Now on 8/17/18 it looked like the perfect short because this stock has run way to far too fast. In a short squeeze situation you have to fight the urge to dive in. In fact if you want to make short term extraordinary gains you have to do the opposite and actually buy this break out and keep buying. The market makers tells were the key at this point because big offers by CSTI were being gobbled up. This was a buying frenzie and the shorts got notice that they needed to cover so they reversed position and started a buying panic that catapulted the stock all the way to $9.20 before launching a massive price collapse so they could average up their short. The stock collapsed in epic fashion on 8/20/18 and got at low as $3.47 on epic volume in the washout phase. Normally you see about 5 downdrafts but this was only 3 cycles.
So the moral of the story is you can wait 5 cycles or just get out on 3 and call it a day. Since its volatile day the stock has retested support and held now its anyone's guess where the stock goes so the best thing to do is stay away. The play has been made - don't reenter. Move on. Look for the next stock to fit this criteria and lie in wait. Happy trading I hope all understand how to spot a short squeeze.