A squeeze is where the market is moved forex breakout strategy ebook an extreme value in a short space of time. These moves are often temporary, and so they can create some good trading opportunities for turning a quick profit.
A squeeze can happen in any traded financial instrument at almost any time. But it is most common in markets where speculators are trading in significant volume. It occurs when large numbers of traders are forced out of the market due to the price moving against them. The triggering event for a squeeze can be unexpected news or even just a technical event such as the breaking of a support or resistance line.
The name of this event aptly comes from the fact that many traders are all trying to squeeze out of the same exit at the same time. Squeezes are more common in less liquid, asset markets like stocks, but they can also happen in forex. In currencies, violent squeezes can be triggered by changes in interest rates. Currency pairs with large yield disparities are particularly susceptible to squeezes.
This is known as carry trade liquidation, or carry pair unwinding. A squeeze becomes self-reinforcing Once a squeeze is triggered, the rapid unwinding of positions can lead to adverse and sudden price movements. This in itself has the effect of moving the price to more extreme levels. That leads to triggering of stop loss orders and squeezing out even more traders who’re unable to hold losing positions indefinitely.