A market situation that occurs when short sellers, panicked because of rising prices, attempt to buy back the shares they previously sold short. Short sellers stranded in the middle of a rising market rush to buy their way out of their losing positions, building up upward price momentum and stirring further panic-buying for the short sellers with open positions. Short squeeze causes an artificial increase in demand which in turn pushes prices up. The dangers of a short squeeze rise if (1) the stock has a very low volume (volume is the number of shares traded per day), (2) there is a high percentage of short sellers (in a that stock) still in the market. Experienced traders may try to profit from a short squeeze by buying into the upward price pressure and selling short when the momentum begins to weaken. Thereafter, these traders will wait till the price returns back to a correction point, net their gains, and re-enter the market by holding long positions.

A short squeeze is also called a bear squeeze.