Leverage Squeeze

A leverage squeeze happens when a large number of traders are positioned in one direction, and the market moves against them, forcing them to close their positions. This creates a surge in buying or selling pressure that pushes the price even further, causing more traders to be squeezed out.

A short squeeze, for example, occurs when the price rises, forcing short sellers to buy back the asset to cover their positions, which further drives the price up. This phenomenon is a powerful driver of parabolic price moves in both traditional and crypto markets.

It is an adversarial market dynamic where participants compete to avoid being the one left with a losing position. Understanding the positioning of the market is crucial to identifying potential squeeze zones.

It is a key aspect of market microstructure and behavioral game theory.