Definition ∞ A short squeeze setup describes market conditions that make a short squeeze highly probable, typically characterized by a large number of outstanding short positions and a relatively low trading volume. This situation creates vulnerability for short sellers if a positive catalyst causes the asset’s price to begin rising. The need for short sellers to cover their positions can then rapidly accelerate the price increase. It signals potential for rapid upward price movement.
Context ∞ Crypto news frequently identifies a short squeeze setup when analyzing market data, such as high short interest ratios or significant negative funding rates. These reports alert traders to the potential for rapid price appreciation if a market catalyst occurs. Recognizing a short squeeze setup provides crucial context for understanding sudden and dramatic price movements in digital assets, influencing trading strategies and market forecasts.
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