Recently, opportunities for short squeezes in altcoins have been frequent. I developed a monitoring system using AI and successfully captured the $VOXEL signal. This article will detail the strategy logic and guide how to write prompts to build a monitoring bot.
The current cryptocurrency market is affected by uncertainties in macro tariff policies, leading to increased risk aversion and a shortage of liquidity in risk assets. Holders of large amounts of altcoins are facing difficulties: how to sell in the spot market when liquidity is lacking? The answer lies in the perpetual contract market! This provides us with an opportunity to collaborate with these holders.
I. Strategy Logic Derivation#
How do holders exit through the perpetual contract market? Here is a step-by-step reasoning:
1. Holder's Dilemma#
Holding a large amount of spot assets, but the market lacks liquidity; direct selling would 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 for the holders.
3. Attracting Short Sellers#
Holders raise the spot price (affecting the mark price), inducing retail investors to go short and establish short positions on perpetual contracts.
4. Negative Funding Rate Bonus#
An increase in short positions leads to contract prices falling below spot prices, turning the funding rate negative, allowing holders with long positions to earn funding and price difference profits.
5. Exit Strategy#
Push the price to resistance levels or liquidation zones, forcing short sellers to close their positions by buying, allowing holders to exit their positions, and even reverse to short.
The core of this strategy is to utilize the "buying" behavior of short sellers to create liquidity for the holders.
II. Core Monitoring Indicators#
Observable changes in indicators throughout the process include:
Extreme negative funding rate (high control of spot by holders) -> Abnormal increase in OI (holders establishing long positions) -> Breaking resistance levels (gaining more liquidity to exit) -> Long/Short Ratio decreases (retail investors being stopped out or liquidated) -> OI decreases, funding rate returns to normal levels.
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 holders, with excessive retail short participation, suggesting that holders may be positioning long.
2. Surge in Open Interest (OI)#
A rapid increase in OI suggests that holders are accumulating a large number of retail short assets.
3. Breaking Resistance Levels#
Prices 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.
Among these, abnormal changes in funding rates and open interest (OI) are leading indicators for capturing signals and should be closely monitored!
III. AI Prompt Core#
Is manual monitoring inefficient? Use AI and Python code to build 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 the 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#
- Run the program every 5 minutes to obtain data for all USDT perpetual contract trading pairs.
- Save the data to data/{symbol}.csv files for further 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 deploy a monitoring bot. After obtaining signals, combine technical analysis to set take-profit and stop-loss. Such opportunities persist, so it is recommended to deploy your bot immediately!
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