AI Writing Strategy for Monitoring Abnormal Signals in Altcoin Short Squeeze

Recently, opportunities for short squeezes in altcoins have frequently appeared. I developed a monitoring tool using AI and successfully captured $VOXEL. This article will explain the strategy logic and how to write a prompt to create a monitoring bot.

The current cryptocurrency market is affected by macro policy uncertainties, with rising risk aversion and a lack of liquidity in risk assets. Whales holding a large number of altcoins are facing difficulties: how to offload their positions in the spot market when liquidity is scarce? The perpetual contract market provides an answer, creating opportunities for us to collaborate 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 positions, 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 Short Sellers#

Whales raise the spot price (affecting the mark price), inducing retail investors to short and take positions on perpetual contracts.

4. Negative Funding Rate Bonus#

An increase in short sellers leads to contract prices falling below spot prices, resulting in a negative funding rate, allowing whales to profit from the 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, allowing whales to exit and even short back.
The core of this strategy is to utilize the "buying" behavior of short sellers to create liquidity for the whales.

The essence of this strategy is to leverage the "buying" behavior of short sellers 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) -> Continuous breakthroughs of resistance levels (gaining more long 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 that whales have high control over the spot market, and retail short sellers are overly involved, suggesting that whales may be positioning long.

2. Surge in Open Interest (OI)#

A rapid increase in OI suggests that whales are accumulating positions by absorbing retail short sellers' 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, and the funding rate returns to normal, indicating that the short squeeze is nearing its end.
Among these, abnormal changes in funding rates and open interest (OI) are leading indicators for capturing signals! They need to be closely monitored.

III. AI Prompt Core#

Is manual monitoring inefficient? Use AI and Python code to create an automated tool that captures abnormal signals in real-time and pushes alerts via Telegram Bot. The implementation steps are as follows:

1. Data Snapshot Acquisition#

Obtain key data for perpetual contract USDT 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#

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 later 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 OI of the last 3 instances / the average OI of the last 10 instances > 2 (indicating a short-term surge in OI), push alerts via Telegram Bot to notify potential short squeeze signals.
With the above prompt, you can create 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 deploy your bot as soon as possible!

Original @AI Soros Kot

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AI Writing Strategy for Monitoring Abnormal Signals in Altcoin Short Squeeze