The theory behind it
A short squeeze happens when a rising price forces leveraged short positions to close. On crypto perpetuals, most shorts are closed involuntarily: once price crosses a position's liquidation level, the exchange buys back the contract at market, which pushes price up and can trigger the next tier of liquidations.
Two inputs describe how much fuel exists. The Long/Short ratio shows positioning skew — a low ratio means shorts crowd the book. Open interest sizes that crowd in dollars, so a low ratio on large OI implies more forced buying than the same ratio on a thin market.
The funding rate shows who pays whom. Persistently negative funding means shorts are paying longs to hold, which raises the cost of staying short and makes crowded positions more fragile over time.
Average leverage sets the distance to trouble: roughly, a position at Nx leverage is liquidated after an adverse move of about 1/N, before fees and maintenance margin. These are estimates from aggregate data, not a map of real liquidation levels.
Frequently asked questions
Does a low Long/Short ratio guarantee a squeeze?
No. Crowded short positioning only supplies the fuel; a squeeze still needs a catalyst — spot buying, news, or a liquidity gap — to start the move. Skewed positioning can persist for weeks without a cascade.
Why does negative funding matter for squeeze risk?
Negative funding means short holders pay longs each interval, so a crowded short book bleeds while it waits. The longer funding stays negative, the more pressure builds on shorts to close, which is why days of negative funding is a separate input.
How accurate is the estimated liquidation distance?
It's an approximation based on average leverage across the whole market, and real positions are spread across many entry prices, leverage levels, and margin modes. Treat the output as a rough zone where liquidation pressure tends to cluster, not a precise trigger price.
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