Warrior Trading Blog

Short Interest Definition: Day Trading Terminology

Short Interest

Short interest is a term that shows how many shares are short compared to the float and can also be displayed as a percentage called the short percent of float.  It is important to understand and know when trading a stock because it can play a huge role in how much a stock can move.

It is basically a market-sentiment gauge because the higher the short interest the more traders think that this stock is over valued and will correct itself to lower prices.

If a stock has growing short interest then we know that more and more traders are becoming bearish on the stock for whatever reason and that is important information that active traders need to make good decisions.

This also goes for a declining short interest. If shorts are starting to cover their positions and the short interest is starting to climb up then we can reasonably assume that shorts may feel that prices are going to go higher and they want to cash in before it does.

A good example of a stock with a high short sellers is TSLA. They have a 29% short interest with over 35 million shares short on a 118 million share float.

There are a couple free sites that display this data like Yahoo Finance and Short Squeeze. You can also get live short interest data with a subscription to Trade Ideas.

Warrior Trading Pro Tip

We like to keep track of this important indicator especially in our low float momentum trading strategy because a low float stock with a high short interest can have home run potential if a positive catalyst comes out bringing in new buyers, which will cause shorts to cover their positions and increase buying in the stock causing higher prices.

Sometimes this can drastically move a stock and if momentum traders catch it right can make a ton of money in a relatively short period of time.

This is also known as a short squeeze and a recent example of this was DRYS when prices went from below $5 per share to over $100 in just a couple of days.