Utilizing ‘Short’ charts to determine a squeeze.
One of the great benefits of the TradingView charting software is that it links up with a great amount of the numerous exchanges around the world. One of the exchanges that I want to discuss is the Bitfinex data feed and how that can be utilized to determine when a short squeeze could happen.
This is certainly one of the anomalies of cryptocurrencies: data feeds with separate charts for long and short volume. I think that this is a tremendous tool and advantage that retail traders generally do not have access too. First, I want to review one of the ways to identify a squeeze:
Bollinger Band Squeeze
The highlighted area represents what is commonly called a ‘Bollinger Squeeze’. Bollinger Bands are an indicator for volatility. The upper and lower bands show us that there is significant volatility and swings in price when we see the bands forming large bulges or wide areas between them. A squeeze occurs after this breakout and we see the upper and lower bands get close together and constrict, thus forming a ‘squeeze’. These form after a big and move and they precede a big move.
The Ichimoku system has two types of circumstances that tell us price is in a squeeze. First, if price is trading inside the cloud. Second, if the Lagging Span is inside the current price action.
Bitfinex Short Chart
And this brings me to the importance and benefit of using the Bitfinex short chart. This chart represents the activity of short positions being opened. We read it like any other chart. And just like any other chart, it is a slave to the same rules that apply to technical analysis. You have to kind of look at this chart differently, but when you see a short chart like this, it’s going to appear bullish when the instrument it represents is actually bearish. The above chart shows the current short positions in Bitcoin. There’s quite a few! Without having to look at Bitcoin’s chart, we know that is has experienced some further downside pressure, hence why we are seeing a bullish short chart.
How to use this in your trading.
If you have difficulty interpreting squeezes using Bollinger Bands or the Ichimoku system, then utilizing a normal chart and a short chart can work. To see if you can identify when a ‘short squeeze’ is going to happen, we want to see two things:
- On the regular chart, we want to observe prices flattening or rising.
- On the short chart, we also want to see prices flattening or rising.
If you notice a swing low could be formed on your chart with any corresponding oscillators and you notice that the short chart has a flattening or a rise in prices, you have good conditions met for a short squeeze. And an early one at that!