In the first article of this series, we covered a market-wide crash as an extreme market regime: the domino effect, rising correlations, disappearing liquidity, and the trader’s primary task — survive and preserve capital.
This article is the next step. A market-wide crash is very often a long squeeze by mechanics: the market is overloaded with longs, forced selling begins, and downside accelerates through liquidations.
So this piece is not about why the market is falling, but about something else:
when long-squeeze pressure is exhausted and buying the dip becomes a valid, structured trade rather than a guess.
What a Long Squeeze Really Is
A long squeeze occurs when:
- the market is overloaded with long positions,
- price starts moving down,
- longs are forcibly closed or liquidated,
- forced selling accelerates the decline.
It’s important to understand:
a long squeeze does not have to be the final move.
It can be either a capitulation phase or an intermediate step before another wave down.
Why “Cheap” Does Not Mean “Buy”
During a long squeeze, the market behaves aggressively:
- RSI can remain oversold far longer than expected,
- levels break without reaction,
- bounces are sold quickly,
- attempts to “catch the bottom” without confirmation turn into averaging.
The most common mistake is treating a sharp drop as a sufficient reason to enter.
In reality, the drop is only a condition, not a signal.
A Critical Derivatives Risk: Forced Closures and the “−90% Candle”
One risk beginners often underestimate is that a derivatives long can be closed without their consent, due to exchange rules and instrument risk parameters.
In extreme situations, an exchange may:
- increase margin requirements,
- adjust contract risk settings,
- restrict trading,
- move a contract into forced-close or delisting mode — often resulting in closure at an unfavorable price.
Additionally, overcrowded markets can produce extreme moves. A clear example is OM/USDT (MANTRA): in April 2025, the token experienced a rapid collapse of approximately 90%, with public reports citing around 92% down within roughly one hour.
This highlights a dangerous misconception: longs feel safer to beginners simply because they are not shorts. In derivatives trading, that safety is illusory. The typical loss scenario is not a single entry, but repeated additions — averaging every large red candle while the market has not yet proven that selling pressure is exhausted.
Capitulation vs. a Regular Squeeze
Capitulation is not just another drop — it is a behavioral shift in the market.
Typical signs of capitulation:
- a series of large long liquidations,
- a climactic volume spike,
- downside momentum starts to slow,
- price stops printing new lows every minute.
The key factor is not price itself, but derivatives behavior.
What to Watch in Derivatives
Open Interest (OI)
- Negative for dip buying:
- OI rises while price falls — leverage is still being added, pressure remains.
- Positive for dip buying:
- OI declines or stops rising — positions are being closed and risk is being reduced.
Premium Index
- Negative:
- Premium moves deeper into negative territory — futures trade at a discount, pressure persists.
- Positive:
- Premium stabilizes or moves back toward zero — imbalance begins to resolve.
Funding
Funding is not a signal on its own, but it strengthens context:
- negative funding supports a potential rebound,
- extremely negative funding without price stabilization often precedes further downside.
When Buying the Dip Actually Makes Sense
Buying the dip after a long squeeze only makes sense when structure is present.
Minimum requirements:
- A clear long squeeze occurred (long liquidations, impulse, volume).
- Price stops accelerating downward.
- OI stops rising or begins to decline.
- Premium Index stabilizes or moves toward zero.
- Price confirms with structure:
- a reclaimed level,
- VWAP return and hold,
- a higher low on 1m/5m.
Without these conditions, dip buying is speculation.
How to Enter
The rule is simple: the market must prove that the sell-off is over.
Typical entry methods:
- retest of a reclaimed level from above,
- first pullback to VWAP after reclaim,
- entry after a higher low with clear invalidation.
Market buying during the dump is prohibited.
Invalidation: When the Scenario Breaks
The dip thesis fails if:
- price prints a new low and accelerates,
- Premium worsens again on weak price,
- OI starts rising against the move,
- structure disappears.
In such cases, the best trade is no trade.
Common Beginner Mistakes
- Buying during the fall without confirmation.
- Blind averaging.
- Ignoring OI and Premium Index behavior.
- Confusing a bounce with a reversal.
- Treating longs as “safe” and adding on every drop.
Conclusion
A long squeeze is a phase of elevated risk and emotion.
Capitulation is not a candle or a percentage — it is a change in market behavior.
Buying the dip only makes sense when:
- selling pressure is exhausted,
- derivatives stop deteriorating,
- structure and defined risk are present.
In all other cases, patience is the edge.
The market always offers another entry — but it rarely forgives haste.