Recently, the altcoin market has seen many short-squeeze opportunities. I developed a monitoring system using AI, successfully capturing the market trends of $VOXEL. This article will analyze the strategy logic and guide how to write prompts to build a monitoring bot.
Currently, the cryptocurrency market is affected by uncertainties in macro tariff policies, leading to heightened risk aversion and a lack of liquidity in risk assets. Holders of large amounts of altcoins are facing difficulties: how can they sell their chips in the spot market when liquidity is scarce? The answer lies in the perpetual contract market, which creates opportunities for us to engage in a game with the big players.
I. Strategy Logic Derivation#
How do big players exit through the perpetual contract market? Here is the step-by-step reasoning:
1. The Dilemma of Big Players#
Holding a large amount of spot chips, but market liquidity is insufficient; direct selling would 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 the big players.
3. Attracting Short Sellers#
Big players raise spot prices (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 sellers leads to contract prices falling below spot prices, causing the funding rate to turn negative, allowing big players holding 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 cover their positions, allowing big players to exit, and even to short-sell in return.
The core of this strategy is to utilize the "buying" behavior of short sellers to create liquidity for big players.
II. Core Monitoring Indicators#
Observable changes in indicators throughout the process include:
Extreme negative funding rate (high control of spot by big players) -> Abnormal increase in OI (big players 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#
A large negative value (e.g., <-0.1%) indicates high control of the spot market by big players, with excessive retail short participation, suggesting that big players may be positioning long.
2. Surge in Open Interest (OI)#
A rapid increase in OI suggests that big players are accumulating a large number of retail short chips.
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 back, and the funding rate returns to normal, indicating that the short squeeze is nearing its end.
Among these, the abnormal changes in funding rate and open interest (OI) are leading indicators for capturing signals and should be closely monitored!
III. Core AI Prompt#
Is manual monitoring inefficient? 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#
- 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 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 OIs / the average of the last 10 OIs > 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 obtaining signals, combine them with technical analysis to set take-profit and stop-loss levels. Such opportunities persist, so it's recommended to deploy the bot immediately!
Original @AI Soros Kot
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