What it is
When shorts are crowded and price rises against them, their losses grow. Some cover voluntarily; others are force-liquidated, which means the exchange buys to close them. That buying pushes price higher, squeezing the remaining shorts — a self-reinforcing move upward.
How the setup forms
The ingredients are crowded short positioning (often visible as persistently negative funding and rising open interest) and a price that starts to move up. The more one-sided and leveraged the shorts, the more fuel a squeeze has. A long squeeze is the mirror image, driving price down.
How to read it
A squeeze is a positioning-driven move, so it can overshoot fundamentals and reverse once the crowded side is flushed. Watch open interest falling rapidly with the price spike — that is leverage being forced out, often marking the exhaustion of the squeeze.