A short squeeze is a sharp rise in price caused by shorts closing positions. Closing a short means buying, so as price rises against shorts, their losses grow, margin thins, and the need to buy back intensifies. The buying pushes price higher still, which squeezes the next layer of shorts.
01The liquidation engine as accelerant
Forced liquidation turns a squeeze from a drift into a spike. When the risk engine liquidates a short it buys at market, with no regard for price. A dense layer of short liquidation prices becomes a wall the price jumps through, which liquidates the next layer, and so on. Squeezes driven by forced buying print some of the fastest green candles in crypto.
The data signature is the mirror of a downside cascade: liquidation volume dominated by shorts, often 80% or more, clustered into minutes, on a sharply rising price.
02Famous fuel
Squeezes are strongest where shorts are crowded and liquidity thin. Deeply negative funding before the move is the usual precondition, and traders watch it alongside the liquidation heatmap, since estimated short liquidation clusters above price mark the runway a squeeze can travel.