Cushion Theory

Cushion Theory This pertains to a strongly bearish market. If many investors are taking a short position in a particular share, the theory holds that the prices must rise, as the bears will have to cover their short positions. Technical analysts read it as a particularly bullish sign if the short positions in a share are twice as high as the number of shares traded daily, because price rises will force bears to cover their positions, thus pushing up prices further.

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