Short Interest Ratio
Definition of 'Short Interest Ratio'
A high short interest ratio can indicate that there is a lot of speculation in the stock, and that investors are expecting the price to fall. This can be a sign of a potential short squeeze, which occurs when a stock's price rises sharply due to a sudden increase in demand.
However, a high short interest ratio does not always indicate that a stock is a good short sale candidate. There are a number of other factors to consider, such as the company's fundamentals, the technicals, and the overall market environment.
The short interest ratio is calculated by dividing the number of shares sold short by the average daily trading volume. The average daily trading volume is calculated by taking the total number of shares traded over a period of time, usually 10 days, and dividing it by the number of trading days.
For example, if a stock has a short interest of 1 million shares and an average daily trading volume of 100,000 shares, the short interest ratio would be 10. This means that there are 10 times as many shares sold short as there are shares traded on average each day.
The short interest ratio is a useful tool for technical analysis, but it should not be used in isolation. It is important to consider other factors, such as the company's fundamentals, the technicals, and the overall market environment, before making any investment decisions.
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