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. Holders of large amounts of altcoins are facing difficulties: it is hard to offload 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 the market makers.
I. Strategy Logic Derivation#
How do market makers exit through the perpetual contract market? Here is the step-by-step reasoning:
1. Market Maker's Dilemma#
Holding a large amount of spot positions, but with insufficient market liquidity, direct selling could trigger a price crash.
2. Perpetual Contract Solution#
Short sellers are forced to buy spot or contracts when they stop-loss or get liquidated, providing liquidity to the market makers.
3. Attracting Short Sellers#
Market makers raise the spot price (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 sellers leads to contract prices falling below spot prices, turning the funding rate negative, allowing market makers to profit from the funding 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 back, allowing market makers to exit, and even potentially short again.
The core of this strategy is to utilize the "buying" behavior of short sellers to create liquidity for market makers.
II. Core Monitoring Indicators#
Observable changes in the entire process include:
Extreme negative funding rate (high control of spot by market makers) -> Abnormal increase in OI (market makers establishing long positions) -> Continuous breakthroughs of resistance levels (gaining more long liquidity to exit) -> Long/Short Ratio decreases (retail investors getting stopped out or liquidated) -> OI decreases, funding rate returns to normal.
To capture short squeeze signals, the following key data must be monitored:
1. Extreme Negative Funding Rate (Funding Rate)#
A large negative value (e.g., <-0.1%) indicates high control of spot by market makers, with excessive retail short participation, suggesting that market makers may be positioning long.
2. Surge in Open Interest (OI)#
A rapid increase in OI suggests that market makers are building large positions to absorb retail short positions.
3. Breaking Resistance Levels#
Price breaking key levels may trigger short liquidations.
4. Indicators Returning to Normal#
After short liquidations, the long-short ratio rises, OI falls, and the funding rate returns to normal, indicating the end of the short squeeze.
Abnormal changes in the funding rate and open interest (OI) are leading indicators for capturing signals and should be closely monitored!
III. AI Prompt Core#
Is manual monitoring insufficient? 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 Storage#
- The program runs every 5 minutes to gather 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 / the 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 prompt, you can build a bot to monitor short squeeze opportunities. After capturing 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
OKX Activities This Month#
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🔥 Practical Tools for Finding Gold Dogs#
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