$BTC
This is a common phenomenon in the derivatives market and it relates to "short squeeze" (forcing short positions to close).
Why does the price increase when there are too many short positions?
1. Short squeeze – Forcing sell orders to buy back:
When there are too many short sellers, if the price increases against their positions, they incur losses.
Many are liquidated or have to manually cut losses, forcing them to buy back to close their positions.
This collective buying pushes the price up quickly and strongly, creating a pump against the initial expectations.
2. Market psychology is skewed:
When "too many people are on the same side," the market tends to go against the crowd.
Market makers or whales will counteract to hunt for liquidations and profit.
3. Strong support levels or unexpected news:
If the price hits a strong support level or there is surprising good news, the buying side will counterattack, causing a squeeze.
What to do when the market is at risk of a short squeeze?
Always set a clear stop loss.
Do not go all-in or hold positions too deep without a plan.
Monitor the funding rate and long/short ratio in the market to avoid getting caught in the crowd trap.
