Recently, opportunities for short squeezes in altcoins have frequently emerged. The author successfully captured the $VOXEL market through an AI-built monitoring system. This article will decode the logic of the short squeeze strategy and share how to create an automated monitoring bot using Prompts.
Currently, the cryptocurrency market is showing a risk-averse trend influenced by macro policies, with liquidity tightening in risk assets. Large holders of altcoins are facing liquidity dilemmas: how to liquidate in the spot market? The perpetual contract market has become a key breakthrough! This is an excellent opportunity for us to dance with the big players.
I. Mechanism of Short Squeeze Strategy#
How do big players exit through the perpetual contract market? The complete logical deduction is as follows:
1. Dilemma of Big Players#
Holding a massive amount of spot chips, but direct selling would trigger a price collapse.
2. Breaking the Deadlock with Perpetual Contracts#
Using forced buying behavior during short stop-loss/liquidation to create a liquidity exit for big players.
3. Inducing Short Positions#
Raising spot prices affects the mark price, inducing retail investors to establish short positions in perpetual contracts.
4. Rate Arbitrage#
Accumulation of shorts leads to contract prices trading at a discount, with negative funding rates becoming an additional source of profit for big players.
5. Ultimate Harvest#
Pushing prices to key resistance levels or liquidation zones, forcing shorts to buy back, allowing big players to distribute and even short-sell in reverse.
The essence of the strategy is to create a liquidity window by utilizing the passive absorption of shorts.
The essence of the strategy is to create a liquidity window by utilizing the passive absorption of shorts.
II. Key Monitoring Indicator System#
The complete short squeeze process presents the following data characteristics:
Extreme negative funding rate (control signal) -> Abnormal increase in OI (position building signal) -> Breakthrough resistance level (activation signal) -> Long-short ratio decline (harvest signal) -> Indicator regression (ending signal)
To accurately capture market trends, the following indicators need to be closely monitored:
1. Extreme Negative Funding Rate (Funding Rate)#
When the funding rate is <-0.1%, it indicates that big players have a high level of control and that shorts are overly crowded, signaling potential short squeeze opportunities.
2. Abnormal OI Changes (OI)#
A short-term surge in OI (3-period average/10-period average > 2) reflects that big players are massively building positions to absorb short chips.
3. Breakthrough of Key Levels#
A price breakthrough of resistance levels will trigger forced liquidation of shorts, forming a positive feedback loop.
4. Indicator Mean Reversion#
Recovery of long-short ratio, decline in OI, normalization of funding rates, marking the end of the short squeeze trend.
The abnormal resonance between funding rates and OI is a core indicator for early warning!
III. AI Monitoring Bot Construction Guide#
Say goodbye to manual monitoring and create an automated monitoring system using Python + AI to achieve real-time alerts on Telegram. The specific implementation path is as follows:
1. Data Collection Module#
Obtain key data for perpetual contracts from the Binance API:
- Mark Price (mark_price)
- Index Price (index_price)
- Basis and Percentage (basis/basis_percent)
- Funding Rate (last_funding_rate)
- Open Interest (oi)
- Long-Short Account Ratio (long_short_account_ratio)
- Top Trader Long-Short Ratio (top_trader_account_ls_ratio)
- Top Trader Position Ratio (top_trader_position_ls_ratio)
- Taker Buy-Sell Ratio (taker_buy_sell_ratio)
(API Documentation: https://developers.binance.com/docs/derivatives)
2. Data Storage Module#
- Set to collect data every 5 minutes
- Store by trading pair in data/{symbol}.csv
3. Alert Trigger Module#
Customize alert conditions:
When the absolute value of the funding rate > 0.1% and OI short-term increase > 100%, trigger a Telegram push.
Using the above Prompt, you can build a short squeeze monitoring system. It is recommended to set take-profit and stop-loss levels in conjunction with technical analysis. Market opportunities continue to emerge, so deploy your digital sentinel now!
Original @AI Soros Kote
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