You know, a short squeeze is one of the wildest phenomena in the market that I regularly observe. Essentially, it’s a sharp price increase of an asset when traders who opened short positions start closing them en masse. And that’s when real chaos begins.

How does this happen in general? Imagine the situation: many traders are confident that the price will fall, they borrow the asset from a broker and sell it. Everything goes according to plan until suddenly the price starts to rise. It could be news, a large purchase, or just manipulation — it doesn’t matter. The shorts end up in the red, and panic sets in.

Then it gets even more interesting. When the price continues to rise, brokers begin forcibly closing short positions by buying back the asset. And this only increases demand and pushes the price even higher. It creates a chain reaction — the more positions are liquidated, the faster the price rises. This can lead to a parabolic surge that simply wipes out everyone.

The short squeeze on GME in 2021 became legendary. The price soared from $20 to $483 in just a few days thanks to mass buying by retail investors. On the crypto market, this happens regularly, especially when volatility is off the charts.

How do I use this in my trading? First, I monitor the percentage of open shorts — a high level can be a signal. Second, I track liquidations on the futures market because a spike in liquidations often triggers a chain reaction. Third, I pay attention to volumes — a sharp increase in volumes during an upward move is usually the first sign that a short squeeze is starting.

Right now, the market situation is interesting. BTC is trading at around 78.76K with a 0.81% increase over the day, ETH holds at 2.33K plus 1.57%, BNB is around 619.90 with a 0.40% rise. A good moment to observe the dynamics.

But remember, it’s still a high-risk game. Short squeezes are unpredictable and can develop very quickly. Always manage your risk and don’t forget about stop-losses.