Imagine a scene: our trader, let's call him Sasha, smiles as he looks at the screen where the BTC chart skyrockets like a rocket. He bought a long on Bitcoin, confident that 'Luna' is not the limit! The mood is great, the coffee is tasty, Sasha anticipates growth. But suddenly... BAM! As if something has come off the brakes, and instead of the expected rise, the asset price starts to plummet rapidly.
Sasha squints slightly: 'Just a small correction, we'll bounce back!' - he tells himself. But no. The chart relentlessly crawls down, as if someone has pulled half the floors from his skyscraper of hopes. About here, the trap known as the long squeeze comes into play.
What is a long squeeze really?
A long squeeze is when the market decides to show the bulls (traders betting on growth) that happiness is a fleeting thing. All those, like Sasha, who expected a rise, suddenly find themselves trapped in a rapid decline. To minimize losses, they start selling their assets, thus adding more fuel to the fire. Everyone selling does so not out of a good life: losses are growing, coffee is bitter, the screen is irritating.
How it works: the long squeeze scenario
Sasha starts to panic. He 'invested' expecting growth! His positions are averaged down, leverage is used (after all, why risk small bets?). And the price keeps falling. His virtual account starts to turn red - not from embarrassment, but from horrific losses. Now he faces a choice: either close the long position, locking in losses, or watch them grow further. Most in such cases decide to sell and leave with smaller losses. But what happens?
Each new sale pushes the price even lower. And now we have not just a decline, but a full-fledged long squeeze, where everyone who was betting on growth is mass 'running away' from the asset to save at least something. In the process of the decline, the most optimistic 'bulls' are swept off the market, as the market literally shows them that not everything goes according to their script.
Crafty whales and their role in the long squeeze
Do you think all this is coincidence? The big players, the so-called 'whales', are just waiting for newcomers to start eagerly going long in a rising market. They see that the crowd is too confidently betting on growth. Then the whales can deliberately start selling off assets to drive the price down and initiate a long squeeze. Once the avalanche of decline starts, the whales wait for the market to crash, and then calmly buy the asset back at a 'ridiculous' price. A real hunt in the style of 'throw and cut'!
Why a long squeeze is an emotional attraction
Long squeeze, friends, is an attraction for the most resilient. Imagine a trader who believed they would soon become rich, but suddenly their hopes evaporate in seconds. They exit their position in panic, with a dreadful feeling that the market has deceived them. This is a purely psychological attack, where instead of the expected flight, you find yourself in the epicenter of a crash, stuck at the exit with losses, watching the endlessly spinning chart.
Conclusion: the long squeeze as a lesson in humility
A long squeeze is a great reminder that markets love surprises and that too much confidence in growth can turn into a crash. Be like the whales: patient, calculated, and calm. If you decide to go long, always leave room for retreat so you don't end up like Sasha, caught in your own 'squeeze'.
So the next time you see the chart dropping faster than you can understand what's happening, it's likely a long squeeze turning the dream of wealth into a lesson in caution.
Article about the opposite situation in the market - Short squeeze.