Recently, opportunities for short squeezes in altcoins have frequently appeared. I developed a monitoring tool using AI and successfully captured $VOXEL last night. This article will explain the strategy logic and guide how to write prompts to build a monitoring bot.
The current cryptocurrency market is driven by uncertainties in macro tariff policies, with rising risk aversion and insufficient liquidity in risk assets. Large holders of altcoins are facing difficulties: it is hard to offload their positions in the spot market, where will the liquidity come from? The answer lies in the perpetual contract market! This provides us with an opportunity to collaborate with these large holders.
I. Strategy Logic Derivation#
How do large holders exit through the perpetual contract market? Here is a step-by-step reasoning:
1. Dilemma of Large Holders#
They hold a large amount of spot positions, but the market lacks liquidity, and direct selling may trigger a price crash.
2. Solution via Perpetual Contracts#
Short sellers are forced to buy spot or contracts when they stop-loss or get liquidated, providing liquidity to large holders.
3. Attracting Short Sellers#
Large holders raise spot prices (affecting the mark price), inducing retail investors to short and take short positions on perpetual contracts.
4. Negative Funding Rate Bonus#
An increase in short positions leads to contract prices being lower than spot prices, turning the funding rate negative, allowing large holders to profit from the rate and price difference.
5. Exit Strategy#
Push the price to resistance levels or liquidation zones, forcing short sellers to close their positions and buy, allowing large holders to exit, and even to short back.
The core of this strategy is to utilize the "buying" behavior of short sellers to create liquidity for large holders.
II. Core Monitoring Indicators#
Observable changes in the entire process include:
Extreme negative funding rate (high control of spot by large holders) -> Abnormal increase in OI (large holders establishing long positions) -> Continuous breakthroughs of resistance levels (gaining more long liquidity to exit) -> Decrease in Long/Short Ratio (retail investors being stopped out or liquidated) -> Decrease in OI, funding rate returning to normal.
To capture short squeeze signals, the following key data must be monitored:
1. Extreme Negative Funding Rate#
A large negative value (e.g., <-0.1%) indicates high control of spot by large holders, with excessive retail short participation, suggesting that large holders may be positioning long.
2. Surge in Open Interest (OI)#
A rapid increase in OI suggests that large holders are accumulating positions by accepting retail short positions.
3. Breaking Resistance Levels#
Prices breaking key points may trigger short liquidations.
4. Indicators Returning to Normal#
After short liquidations, the long-short ratio rises, OI falls back, and the funding rate returns to normal, indicating that the short squeeze is nearing its end.
Abnormal changes in funding rates and open interest (OI) are leading indicators for capturing signals and must be closely monitored!
III. AI Prompt Core#
Is manual monitoring hard to cover? Use AI and Python code to create automated tools that capture abnormal signals in real-time and push alerts via Telegram Bot. The implementation steps are as follows:
1. Data Snapshot Acquisition#
Obtain key data for USDT perpetual contract trading pairs from the Binance exchange API, including:
- mark_price (mark price)
- index_price (index price)
- basis (basis)
- basis_percent (basis percentage)
- last_funding_rate (latest funding rate)
- oi (open interest)
- long_short_account_ratio (account long-short ratio)
- top_trader_account_ls_ratio (large trader account long-short ratio)
- top_trader_position_ls_ratio (large trader position long-short ratio)
- taker_buy_sell_ratio (taker buy-sell ratio)
(Note: If AI acquisition fails, refer to the official API documentation: https://developers.binance.com/docs/derivatives)
2. Scheduled Execution and Data Saving#
- The program runs every 5 minutes to acquire data for all USDT perpetual contract trading pairs.
- Data is saved to data/{symbol}.csv files for subsequent analysis.
3. Abnormal Alert Logic#
Set custom trigger conditions:
When the absolute value of the funding rate > 0.1% (i.e., last_funding_rate < -0.001 or > 0.001), and the average of the last 3 OI / average of the last 10 OI > 2 (indicating a short-term surge in OI), push alerts via Telegram Bot to indicate potential short squeeze signals.
With the above prompts, you can build a bot to monitor short squeeze opportunities. After obtaining signals, combine them with technical analysis to set take-profit and stop-loss levels. Such opportunities persist, so it is recommended to deploy the bot immediately!
Original @AI Soros Kote
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