In the crypto market, a squeeze can occur at any time. A squeeze can be triggered by unexpected news or a technical event, such as crossing a support or resistance line.
Squeezes are a form of crypto market scenario in which market forces lead profits to plummet, or market momentum generates a quick domino effect in which a vast sum is lost or made all at once.
This guide will talk about what crypto squeeze is and how you can benefit from it.
What is a crypto squeeze trading method?
There are two types of market squeezes:
- Long
- Short
A short squeeze occurs when the price quickly rises, and many traders holding short positions are expected to buy back their positions. On the other hand, a long squeeze is when the price falls, and long-side traders are pushed to sell out of their holdings.
In the crypto market, short ones are more common than long ones. When the price of any cryptocurrency rises, for example, some people hope for a quick collapse. Shorting cryptos like meme coins, on the other hand, is even more appealing owing to the use of derivatives and colossal leverage.
With a volatile asset like meme coins, bearish market trends can linger. Many people believe that if the crypto market falls for a few days, the trend will continue.
When a squeeze occurs, the quick unwinding of positions can result in unfavorable and unexpected market swings. This, in turn, causes the price to rise to more severe levels. As a result, stop-loss orders are triggered, forcing out even more traders who cannot hold losing positions forever.
How to trade using the crypto squeeze trading method?
As mentioned earlier, short squeezes happen more in the crypto market than their counterparts. As a result, a trader must watch the interest rate for short squeezes.
Although this metric is derived from the stock market, it is imperative in the Bitcoin industry. One method is to look at the number of short positions liquidated before maturity. A more significant number suggests that the price is likely to flip from bearish to bullish, indicating that it is time to exit a short position.
Now that you know about market squeezes, its’ time to talk about the bullish and bearish trade setups.
Bullish trade setup
The first thing you need to do for the bullish setup is identify a short squeeze. To identify a short squeeze, you can use indicators like the RSI to find oversold crypto. The RSI indicates an oversold level when it reaches below 30. If crypto is oversold, there is a chance that the price will go in an uptrend.
Entry
Once you identify the oversold area, you can enter the trade. It’s always good to wait for the trend to continue its path and then enter the trade.
Stop loss
You can place the stop-loss at the recent low from the entry point.
Take profit
For setting TP, you can look at the recent high level. Another way to set TP is to exit the trade when the RSI reaches an overbought level.
Bearish trade setup
For a bearish trade setup, it’s essential to identify a long squeeze. To place a long squeeze, you can use an oscillator like the RSI to find the overbought area. The RSI indicates an overbought condition when it reaches above or at 70-level. The overbought situation implies that the crypto price will enter a downtrend.
Entry
Once you identify the long squeeze, you must enter the trade when the RSI is in overbought territory. Wait for the price action to continue its path and enter the trade.
Stop loss
You can place a stop-loss near the recent high from the entry point.
Take profit
For TP, you can exit when the RSI moves into the oversold territory or set it at the recent low from the entry point.
How to manage risks?
In principle, no market is immune to short squeezes. A quick and temporary squeeze is always on the cards if there is a chance to short a certain market. However, any market with little or no shorting alternatives might still have giant price bubbles. As a result, traders should trade against markets and assets because no market can continue to rise in value continuously. The ratio of short to long positions is one indication to watch for. If the number of short positions considerably outnumbers the number of long positions or vice versa.
Keeping a check on the long-short ratio may help all traders, irrespective of market experience. Moreover, it’s an exciting indicator that may frequently help predict how market sentiment will change.
How to make $500 per day with this strategy?
No asset can continue to increase in value without experiencing a setback sooner or later. So investors looking to make a fast buck might benefit by opening a short or long position when that moment comes.
Say you’re looking at weak and underperforming crypto. Then, assume the firm launches a new project and the price skyrockets in a matter of days. You are likely to profit from short-sellers betting against the coin in this position.
When the price of crypto skyrockets, many short sellers will begin to liquidate their positions and buy shares to cover. You may be able to profit from the activity of these traders at this moment.
Final thought
Taking advantage of the crypto squeezes can result in massive returns. However, if you want to profit from squeezes, you must first learn how to identify them correctly. Trading squeezes are a combo of technical and fundamental. So, you have to keep an eye on both of them.