Recently, the altcoin market has seen many short squeeze opportunities. I developed a monitoring system using AI and successfully captured the market trend 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 games with the whales.
I. Strategy Logic Derivation#
How do whales exit through the perpetual contract market? Here is the step-by-step reasoning:
1. Whale Dilemma#
Holding a large amount of spot chips, 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 to the whales.
3. Attracting Shorts#
Whales raise the spot price (affecting the mark price), inducing retail investors to short and establish short positions on perpetual contracts.
4. Negative Funding Rate Bonus#
An increase in shorts leads to contract prices falling below spot prices, causing the funding rate to turn negative, allowing whales to profit from the funding rate and price difference.
5. Exit Strategy#
Push the price to resistance levels or liquidation zones, forcing shorts to close their positions by buying, allowing whales to exit and even short back.
The core of this strategy is to utilize the "buying" behavior of shorts to create liquidity for the whales.
II. Core Monitoring Indicators#
Observable changes in indicators throughout the process include:
Extreme negative funding rate (high control of spot by whales) -> Abnormal increase in OI (whales establishing long positions) -> Breaking through resistance levels (securing 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 spot by whales, with excessive retail short participation, suggesting that whales may be positioning for long.
2. Surge in Open Interest (OI)#
A rapid increase in OI suggests that whales are accumulating a large number of retail short chips.
3. Breaking Through Resistance Levels#
Prices breaking through 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 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. AI Prompt Core#
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 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 account long-short ratio)
- top_trader_position_ls_ratio (large 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#
- 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 recent average OI of the last 3 times / the recent average OI of the last 10 times > 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 is recommended to deploy the bot immediately!
Original @AI Soros Kot
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