What is a short squeeze? The trading minute

A short squeeze occurs when a rapid price increase forces short sellers (those who bet on a decline) to urgently buy back their positions. The goal: to limit losses.

These forced buybacks create additional demand. This pushes the price even higher, which forces other sellers to buy back in turn.

The snowball effect is at the heart of the mechanism: the more trapped sellers there are, the more the rise feeds itself, until the movement exhausts itself. The trigger can be unexpected news, a change in the macroeconomic context, or simply insufficient liquidity that amplifies a movement that should have remained modest.

A textbook case occurred just a few days ago.

There’s no need to go back years to find a clear example. The market provided one at the very beginning of July 2026.

Le Journal du Coin reported on July 3 that Bitcoin, after several weeks of weakness, had crossed the $61,000 mark and was approaching $62,000, its highest level since mid-June.

According to data from Coinglass cited in the article, $440 million in leveraged positions had been liquidated in 24 hours. Of which $281 million came from short positions, against $159 million from long positions. Nearly 95,700 traders were thus liquidated in a single day.

CoinDesk confirmed the same movement, noting that Ethereum and Solana followed suit, driven by the same technical rebound.

The catalyst this time was not crypto-specific. Weaker-than-expected U.S. employment statistics reduced expectations for further rate hikes by the Federal Reserve. As a result: the dollar slightly weakened, giving breathing room to risky assets.

Short sellers, heavily positioned on a prolonged weakness scenario, found themselves caught off guard overnight.

One detail is worth noting: the largest individual liquidation of the day involved a short position of $18.2 million on Ethereum, on the Hyperliquid platform. Proof that the squeeze was not limited to Bitcoin alone.

The short squeeze spares no one. But it primarily punishes those who use excessive leverage without a clear exit plan.

A highly leveraged short position tolerates very little adverse movement before being automatically liquidated by the platform. This in turn fuels the upward movement.

Conversely, a seller who uses moderate leverage, with a stop-loss placed above a key resistance, suffers a controlled loss rather than a cascading liquidation.

For an individual trader, the lesson can be summed up in one sentence: never bet against a market without planning in advance for the scenario where you are wrong.

A short squeeze occurs precisely when too many people are convinced they are right at the same time.

Caution does not mean avoiding short positions, but sizing them in a way that allows survival in the opposite scenario. It’s the same principle that guides risk management on a long position: size before hoping.

The crypto market, by its volatile nature, loves to remind this rule to those who forget it. Often at the moment they least expect it.

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