PLEASE READ THIS *NEW PLAYERS

Short Sellers: These investors borrow an asset (stock, ETF, etc.) and sell it immediately, hoping to buy it back later at a lower price and return it to the lender, pocketing the difference. They essentially bet on the price going down.
Long Buyers: These investors buy an asset outright, hoping its price will increase so they can sell it later for a profit. They bet on the price going up.

Short Sellers Borrow and Sell: A significant number of short sellers believe an asset is overvalued and borrow a large amount of it to sell short.
Unexpected Price Rise: Due to unforeseen events, positive news, or simply increased buying pressure from long buyers, the price of the asset starts to rise.

Short Sellers Feel the Squeeze: As the price goes up, short sellers start feeling the pressure. They face two options:

Buy Back and Cover: They can buy back the asset they borrowed to return it, but now at a higher price, leading to a loss. This "covering" of their short positions adds even more buying pressure to the market, further pushing the price up.
Hold Short Position (Risky): They can hold their short position hoping the price will eventually fall. However, this becomes increasingly risky as the price continues to rise, potentially leading to significant losses.

The Result:
Rapid Price Increase: The combination of short sellers buying back (covering) and continued buying pressure from long buyers can cause a rapid and significant increase in the price of the asset. This is the "short squeeze."